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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address, including zip code, of principal executive offices)
(Registrant’s telephone number, including area code): (
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ |
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Accelerated Filer |
☐ |
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Non-Accelerated Filer |
☐ |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
On October 29, 2021, the registrant had
HUB GROUP, INC.
INDEX
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Page |
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PART I. Financial Information:
Item 1. Financial Statements |
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Consolidated Balance Sheets – September 30, 2021 (unaudited) and December 31, 2020 |
3 |
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4 |
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5 |
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Unaudited Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2021 and 2020 |
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7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
20 |
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20 |
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20 |
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20 |
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20 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
20 |
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20 |
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2
HUB GROUP, INC.
C ONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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September 30, |
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December 31, |
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2021 |
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2020 |
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ASSETS |
(unaudited) |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable trade, net |
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Other receivables |
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Prepaid taxes |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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Restricted investments |
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Property and equipment, net |
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Right-of-use assets - operating leases |
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Right-of-use assets - financing leases |
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Other intangibles, net |
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Goodwill, net |
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Other assets |
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TOTAL ASSETS |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable trade |
$ |
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$ |
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Accounts payable other |
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Accrued payroll |
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Accrued other |
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Lease liability - operating leases |
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Lease liability - financing leases |
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Current portion of long-term debt |
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TOTAL CURRENT LIABILITIES |
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Long-term debt |
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Non-current liabilities |
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Lease liability - operating leases |
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Lease liability - financing leases |
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Deferred taxes |
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STOCKHOLDERS' EQUITY: |
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Preferred stock, $
.01
par value;
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Common stock |
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Class A: $
.01
par value;
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Class B: $
.01
par value;
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Additional paid-in capital |
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Purchase price in excess of predecessor basis, net of tax benefit of $
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(
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(
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Retained earnings |
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Accumulated other comprehensive loss |
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(
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(
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Treasury stock; at cost,
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(
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) |
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(
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) |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
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$ |
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See notes to unaudited consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
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Three Months |
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Nine Months |
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Ended September 30, |
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Ended September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue |
$ |
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$ |
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$ |
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$ |
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Transportation costs |
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Gross margin |
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Costs and expenses: |
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Salaries and benefits |
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General and administrative |
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Depreciation and amortization |
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Total costs and expenses |
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Operating income |
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Other income (expense): |
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Interest expense |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Other, net |
|
(
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) |
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(
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(
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) |
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Total other expense |
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(
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) |
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(
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) |
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(
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) |
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(
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Income before provision for income taxes |
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Income tax expense |
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||||
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Net income |
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||||
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Other comprehensive income: |
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||||
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Foreign currency translation adjustments |
|
(
|
) |
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(
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) |
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(
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) |
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||||
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Total comprehensive income |
$ |
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$ |
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$ |
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$ |
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Basic earnings per common share |
$ |
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$ |
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$ |
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$ |
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||||
|
Diluted earnings per common share |
$ |
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$ |
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$ |
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$ |
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||||
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Basic weighted average number of shares outstanding |
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Diluted weighted average number of shares outstanding |
|
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|
See notes to unaudited consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
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Purchase Price |
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Class A & B |
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of Excess of |
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Accumulated |
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Common Stock |
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Additional |
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Predecessor |
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Other |
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Treasury |
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Shares |
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Paid-in |
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Basis, Net |
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Retained |
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Comprehensive |
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Stock |
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||||||||||||
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Issued |
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Amount |
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Capital |
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of Tax |
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Earnings |
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Income |
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Shares |
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Amount |
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Total |
|
|||||||||
|
Balance June 30, 2020 |
|
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|
|
$ |
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$ |
|
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$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
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|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
|
|
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
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|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Balance September 30, 2020 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
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|
|||||||||
|
Balance June 30, 2021 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Balance September 30, 2021 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance December 31, 2019 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Balance September 30, 2020 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance December 31, 2020 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Balance September 30, 2021 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
5
HUB GROUP, INC.
U NAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net Income |
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Deferred taxes |
|
(
|
) |
|
|
|
|
|
Compensation expense related to share-based compensation plans |
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets |
|
(
|
) |
|
|
|
|
|
Other operating activity |
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
Restricted investments |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
(
|
) |
|
|
(
|
) |
|
Prepaid taxes |
|
|
|
|
|
(
|
) |
|
Prepaid expenses and other current assets |
|
(
|
) |
|
|
|
|
|
Other assets |
|
(
|
) |
|
|
(
|
) |
|
Accounts payable |
|
|
|
|
|
|
|
|
Accrued expenses |
|
|
|
|
|
(
|
) |
|
Non-current liabilities |
|
(
|
) |
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Proceeds from sale of equipment |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(
|
) |
|
|
(
|
) |
|
Cash used in acquisition |
|
(
|
) |
|
|
|
|
|
Net cash used in investing activities |
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Proceeds from issuance of debt |
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
(
|
) |
|
|
(
|
) |
|
Stock withheld for payments of withholding taxes |
|
(
|
) |
|
|
(
|
) |
|
Finance lease payments |
|
(
|
) |
|
|
(
|
) |
|
Net cash used in financing activities |
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
||
|
Net increase in cash and cash equivalents |
$ |
|
|
|
$ |
|
|
|
Cash and cash equivalents beginning of the period |
$ |
|
|
|
$ |
|
|
|
Cash and cash equivalents end of the period |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
Supplemental disclosures of cash paid for: |
|
|
|
|
|
||
|
Interest |
$ |
|
|
|
$ |
|
|
|
Income taxes |
$ |
|
|
|
$ |
|
|
See notes to unaudited consolidated financial statements.
6
HUB GROUP, INC.
N OTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Interim Financial Statements
The accompanying unaudited consolidated financial statements of Hub Group, Inc. (the “Company,” “Hub,” “we”, “us” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been omitted pursuant to those rules and regulations. However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.
The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position as of September 30, 2021 and results of operations for the three and nine months ended September 30, 2021 and 2020.
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, 2020 . Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality. Certain prior year immaterial amounts have been reclassified in the revenue summary table in Note 4, Revenue from Contracts with Customers, to conform with the current year presentation.
NOTE 2. Acquisition
On
The acquisition of NSD expanded our logistics service offering to include residential last mile logistics. NSD operates through a non-asset business model, working with a network of over
The following table summarizes the total purchase price allocated to the net assets acquired and liabilities assumed as of the date of acquisition (in thousands):
|
|
December 9, 2020 |
|
|
|
Cash and cash equivalents |
$ |
|
|
|
Accounts receivable trade |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Right of use assets - operating leases |
|
|
|
|
Goodwill, net |
|
|
|
|
Other intangibles |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
$ |
|
|
|
|
|
|
|
|
Accounts payable trade |
$ |
|
|
|
Accrued payroll |
|
|
|
|
Accrued other |
|
|
|
|
Lease liability - operating leases short-term |
|
|
|
|
Lease liability - operating leases long-term |
|
|
|
|
Total liabilities assumed |
$ |
|
|
|
|
|
|
|
|
Total consideration |
$ |
|
|
|
|
|
|
|
|
Cash paid, net |
$ |
|
|
The NSD acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of December 9, 2020 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the NSD acquisition was primarily attributable to potential expansion and future development of the acquired business.
7
The following table presents the carrying amount of goodwill (in thousands):
|
|
Total |
|
|
|
Balance at January 1, 2021 |
$ |
|
|
|
Acquisition |
|
|
|
|
Other |
|
(
|
) |
|
Balance at September 30, 2021 |
$ |
|
|
The changes noted as "acquisition" in the above table refer to adjustments to other intangibles, property and equipment and other immaterial purchase accounting adjustments related to the NSD acquisition.
The changes noted as "other" in the above table refer to the amortization of the income tax benefit of tax goodwill in excess of financial statement goodwill.
Tax history and attributes are not inherited in an equity purchase of this kind; however, the goodwill and other intangibles recognized in this purchase will be fully tax deductible over a period of
The components of “Other intangibles” listed in the above table as of the acquisition date are summarized as follows (in thousands):
|
|
|
|
|
Accumulated |
|
|
Balance at |
|
|
Estimated Useful |
|||
|
|
Amount |
|
|
Amortization |
|
|
September 30, 2021 |
|
|
Life |
|||
|
Customer relationships |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Agent relationships |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Trade name |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the three and nine months ended September 30, 2021 was $
|
|
|
Total |
|
|
|
Remainder of 2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
The following unaudited pro forma consolidated results of operations present the effects of NSD as though it had been acquired as of January 1, 2020 (in thousands, except for per share amounts):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
September 30, 2020 |
|
|
September 30, 2020 |
|
||
|
Revenue |
$ |
|
|
|
$ |
|
|
|
Net income |
$ |
|
|
|
$ |
|
|
|
Earnings per share |
|
|
|
|
|
||
|
Basic |
$ |
|
|
|
$ |
|
|
|
Diluted |
$ |
|
|
|
$ |
|
|
8
NOTE 3. Earnings Per Share
The following is a reconciliation of our earnings per share (in thousands, except for per share data):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Dilutive effect of stock options and restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share - basic |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share - diluted |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 4. Revenue from Contracts with Customers
Hub offers comprehensive multimodal solutions including intermodal, truck brokerage, logistics and dedicated services. Hub has full time employees located throughout the United States, Canada and Mexico.
Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our subsidiary Hub Group Trucking, Inc. (“HGT”) and third-party local trucking companies.
Logistics . Hub’s logistics operation offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include truckload, less-than-truckload, intermodal, last mile delivery, small parcel, heavyweight, expedited, railcar and international. We leverage proprietary technology along with collaborative relationships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer packaged goods clients. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and eventually consolidated, along with goods from other customers, into full truckload shipments destined to major North American retailers. These services offer our customers shipment visibility, transportation cost savings, high service levels and compliance with retailers’ increasingly stringent supply chain requirements.
On December 9, 2020, we acquired NSD. NSD provides residential last mile delivery services through a non-asset business model, working with a network of over
Truck Brokerage. Our truck brokerage operation provides customers with an over the road service option for their transportation needs. Our brokerage service does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.
Dedicated. Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment.
9
The following table summarizes our disaggregated revenue by business line (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Intermodal |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Logistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truck brokerage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedicated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 5. Fair Value Measurement
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of September 30, 2021 and December 31, 2020. As of September 30, 2021 and December 31, 2020, the fair value of the Company’s fixed-rate borrowings was $
We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of September 30, 2021 and December 31, 2020, our cash is with high quality financial institutions in demand deposit accounts, savings accounts and an interest bearing checking account.
Restricted investments included $
Our assets and liabilities measured at fair value are based on valuation techniques that consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cash equivalents, mutual funds, accounts receivable and accounts payable are defined as “Level 1,” while long-term debt is defined as “Level 2” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification.
NOTE 6. Long-Term Debt and Financing Arrangements
On July 1, 2017, we entered into a $
10
Our unused and available borrowings were $
We have entered into various secured Equipment Notes (“Notes”) for the purchase of tractors, trailers containers and other equipment. The Notes are secured by the underlying equipment financed with the proceeds of the Notes.
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
||
|
Interim funding for equipment received and expected to be converted to an equipment note in subsequent period; interest paid at a variable rate |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
Secured Equipment Notes due on various dates in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Secured Equipment Notes due on various dates in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Secured Equipment Notes due on various dates in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Secured Equipment Notes due on various dates in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Secured Equipment Notes due on various dates in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Secured Equipment Notes due on various dates in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Less current portion |
|
(
|
) |
|
|
(
|
) |
|
Total long-term debt |
$ |
|
|
|
$ |
|
|
11
NOTE 7. Legal Matters
Robles
On
Although the Company believes that the California drivers were properly classified as independent contractors at all times, because litigation is expensive, time-consuming and could interrupt our business operations, HGT decided to make settlement offers to individual drivers with respect to the claims alleged in this lawsuit, without admitting liability. In late 2014, HGT converted its model from independent contractors to employee drivers in California.
Adame
On August 5, 2015, a suit was filed in state court in San Bernardino County, California on behalf of
In September 2019, Hub and the plaintiffs’ counsel in the Robles and Adame matters agreed in principle to settle all claims in both lawsuits for $
We are involved in certain other claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, failure to reimburse incurred business expenses and other items. Based on management's present knowledge, management does not believe that loss contingencies arising from these pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
NOTE 8. New Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. We adopted this standard on January 1, 2021, as required, but it did not have a material impact on our consolidated financial statements.
NOTE
On
The acquisition enhances our over-the-road refrigerated transportation solutions offering and complements our growing fleet of refrigerated intermodal containers. Choptank has developed a best-in-class proprietary technology platform that we will leverage to enhance our truck brokerage service line.
12
I tem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “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. 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, 2020 (the “2020 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:
13
EXECUTIVE SUMMARY
Hub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading supply chain solutions provider that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our mission is to continuously elevate each customer’s business to drive long term success. Our vision is to build the industry’s premier supply chain solutions. Our service offerings include comprehensive intermodal, truck brokerage, dedicated trucking, managed transportation, freight consolidation, warehousing, last mile delivery, international transportation, parcel and other logistics services.
As an intermodal provider, we arrange for the movement of our customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our Hub Group Trucking (“HGT”) subsidiary and third-party local trucking companies.
For the nine months ended September 30, 2021, HGT provided approximately 51% of our drayage needs in connection with our delivery of reliable, cost effective intermodal services to our customers. As of September 30, 2021, HGT operated approximately 1,400 tractors and 200 trailers, employed approximately 1,400 drivers and contracted with approximately 800 owner-operators.
Our logistics operation offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include truckload, less-than-truckload, intermodal, last mile delivery, small parcel, heavyweight, expedited, railcar and international. We leverage proprietary technology along with collaborative relationships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer packaged goods clients. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and eventually consolidated, along with goods from other customers, into full truckload shipments destined to major North American retailers. These services offer our customers shipment visibility, transportation cost savings, high service levels and compliance with retailers’ increasingly stringent supply chain requirements
In December 2020, we expanded our logistics services through the acquisition of NonstopDelivery, LLC ("NSD"). NSD provides threshold and white glove residential last mile delivery services including warehousing and distribution, product assembly and reverse logistics to many of the largest retailers in the United States. NSD operates a non-asset business model, working with a network of over 170 carriers through the country. NSD provides high levels of service to customers and end consumers through a centralized call center and dedicated account management teams. NSD’s logistics technology provides customers with real-time visibility to shipments, access to analytical tools and seamless integration with other platforms.
Our truck brokerage operation arranges for the transportation of freight by truck, providing customers with an over the road service option for their transportation needs. Our brokerage service does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.
Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment.
14
Our dedicated operation currently operates a fleet of approximately 1,000 tractors and 4,600 trailers at 65 locations throughout the U.S. As of September 30, 2021, our dedicated operation employed approximately 1,100 drivers.
We employ full-time sales 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 and logistics services to them.
Our multimodal solutions group works with our pricing, account management and operations teams to enhance our margins across all lines of business. We are focused on margin enhancement initiatives including pricing optimization, matching of inbound and outbound loads, reducing empty miles, improving the retention of our drivers, controlling our maintenance costs, improving tractor and driver utilization, enhancing our procurement strategy, improving our recovery of accessorial costs, reducing repositioning costs, providing holistic solutions, and reviewing and improving low profit freight.
Our top 50 customers represent approximately 69% of revenue for the nine months ended September 30, 2021. We use various performance indicators to manage our business. We closely monitor profitability of our top 50 customers. We also evaluate on-time performance, customer service, cost per load and trade receivables of these customer accounts. Vendor cost changes and vendor service issues are also monitored closely.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020
The following table summarizes our revenue by business line (in thousands):
|
|
Three Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Intermodal |
$ |
633,427 |
|
|
$ |
543,464 |
|
|
Logistics |
|
224,136 |
|
|
|
192,187 |
|
|
Truck brokerage |
|
153,270 |
|
|
|
119,994 |
|
|
Dedicated |
|
64,274 |
|
|
|
69,167 |
|
|
Total revenue |
$ |
1,075,107 |
|
|
$ |
924,812 |
|
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, |
||||||||||
|
|
2021 |
|
2020 |
||||||||
|
Revenue |
$ |
1,075,107 |
|
|
100.0% |
|
$ |
924,812 |
|
|
100.0% |
|
Transportation costs |
|
917,507 |
|
|
85.3% |
|
|
816,777 |
|
|
88.3% |
|
Gross margin |
|
157,600 |
|
|
14.7% |
|
|
108,035 |
|
|
11.7% |
|
|
|
|
|
|
|
|
|
|
|
||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
||
|
Salaries and benefits |
|
65,370 |
|
|
6.1% |
|
|
45,576 |
|
|
4.9% |
|
General and administrative |
|
23,445 |
|
|
2.2% |
|
|
20,845 |
|
|
2.3% |
|
Depreciation and amortization |
|
8,912 |
|
|
0.8% |
|
|
7,697 |
|
|
0.8% |
|
Total costs and expenses |
|
97,727 |
|
|
9.1% |
|
|
74,118 |
|
|
8.0% |
|
|
|
|
|
|
|
|
|
|
|
||
|
Operating income |
$ |
59,873 |
|
|
5.6% |
|
$ |
33,917 |
|
|
3.7% |
Revenue
Revenue increased 16.3% to $1,075.1 million in 2021 from $924.8 million in 2020. Intermodal revenue increased 16.6% to $633.4 million primarily due to a 26.2% increase in revenue per load partially offset by a 7.6% decrease in volume. Logistics revenue increased 16.6% to $224.1 million due to growth of our retail supplier solutions services and the contribution of NSD, partially offset by the impact of lost customers. Truck brokerage revenue increased 27.7% to $153.3 million due to a 31.1% increase in revenue per load, partially
15
offset by a 2.6% decline in volume. Dedicated’s revenue decreased 7.1% to $64.3 million due to declines from existing customers and the impact of business we exited.
Transportation Costs
Transportation costs increased 12.3% to $917.5 million in 2021 from $816.8 million in 2020. Transportation costs in 2021 consisted of purchased transportation costs of $736.7 million and equipment and driver related costs of $180.8 million compared to 2020 purchased transportation costs of $654.5 million and equipment and driver related costs of $162.3 million. The increase in purchased transportation costs was due primarily to higher third-party carrier costs, increased rail costs, and increased fuel costs, partially offset by lower volumes in intermodal and truck brokerage, decreased repositioning costs, and decreased container stacking charges. Equipment and driver related costs increased 11.4% primarily due to higher per driver compensation, partially offset by decreased usage of our internal drayage resources to 47% of total drayage moves in 2021 from 54% in 2020.
Gross Margin
Gross margin increased 45.9% to $157.6 million in 2021 from $108.0 million in 2020. The margin increase of $49.6 million was the result of gross margin increases in intermodal, logistics, and truck brokerage, partially offset by a decrease in dedicated. Intermodal gross margin increased 83.6% compared to the third quarter of 2020 primarily due to higher prices and lower equipment repositioning costs, partially offset by lower volumes, increased internal drayage costs, and increased purchased transportation costs. Logistics gross margin increased 25.0% primarily due to revenue growth, yield management initiatives, and the acquisition of NSD, partially offset by higher warehousing and transportation costs. Truck brokerage gross margin increased 28.1% primarily due to higher revenue per load, partially offset by a 2.6% decrease in volume and higher purchased transportation costs. Dedicated gross margin decreased primarily due to business we exited and higher insurance, claims and repair costs.
Gross margin as a percentage of revenue increased to 14.7% in 2021 from 11.7% in 2020. Intermodal gross margin as a percentage of revenue increased 530 basis points due to higher pricing, partially offset by increased purchased transportation costs and drayage costs. Logistics gross margin as a percentage of revenue increased by 100 basis points due to our continuous improvement initiatives, and the addition of NSD. Truck brokerage gross margin as a percentage of revenue was flat. Dedicated gross margin as a percent of revenue declined 450 basis points compared to the prior year primarily due to changes in customer mix.
CONSOLIDATED OPERATING EXPENSES
Salaries and Benefits
Salaries and benefits expense increased to $65.4 million in 2021 from $45.6 million in 2020. As a percentage of revenue, salaries and benefits increased to 6.1% in 2021 from 4.9% in 2020. The increase of $19.8 million was primarily due the addition of NSD, increases in employee bonuses of $11.9 million, commissions expense of $2.3 million, and employee benefits and payroll taxes of $2.4 million. Headcount as of September 30, 2021 and 2020 was 1,971 and 1,849 respectively, which excludes drivers, the cost which is included in Transportation costs. The increase in headcount is primarily due to the addition of NSD employees.
General and Administrative
General and administrative expenses increased to $23.4 million in 2021 from $20.8 million in 2020. These expenses, as a percentage of revenue, decreased to 2.2% in 2021 from 2.3% in 2020. The increase of $2.6 million was primarily due to an increase in legal claims expense of $3.2 million, a $2.1 million increase in professional services primarily driven expenses related to the acquisition of Choptank, an increase of $0.7 million of travel and related expenses, an increase of $0.3 million for outside commissions expenses, and additional expenses from NSD, partially offset by an increase of $4.9 million for gains on the sale of transportation equipment.
Depreciation and Amortization
Depreciation and amortization expense increased to $8.9 million in 2021 from $7.7 million in 2020 related primarily to the amortization of intangibles related to the acquisition of NSD and computer software. This expense as a percentage of revenue remained consistent at 0.8% in both 2021 and 2020.
Other Expense
Other expense decreased to $1.9 million in 2021 from $2.4 million in 2020 due to less average borrowings and lower average interest rates on existing borrowings.
Provision for Income Taxes
16
The provision for income taxes increased to $14.6 million in 2021 from $6.8 million in 2020, due largely to significantly higher income in 2021, and a slightly higher effective tax rate. We provided for income taxes using an effective rate of 25.3% in 2021 and a rate of 21.5% in 2020.
The higher effective tax rate in 2021 is a result of larger permanent differences in 2021 than 2020, as well as amended tax returns and the reversal of a tax reserve in 2020, both of which had favorable impacts on the 2020 tax rate. We expect our effective tax rate for the full year of 2021 to be approximately 24%.
Net Income
Net income increased to $43.3 million in 2021 from $24.8 million in 2020 due primarily to increases in revenue and gross margin, and partially offset by higher operating expenses and income tax expense.
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
The following table summarizes our revenue by business line (in thousands):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Intermodal |
$ |
1,689,617 |
|
|
$ |
1,468,624 |
|
|
Logistics |
|
663,620 |
|
|
|
569,682 |
|
|
Truck brokerage |
|
420,523 |
|
|
|
304,686 |
|
|
Dedicated |
|
202,220 |
|
|
|
199,922 |
|
|
Total revenue |
$ |
2,975,980 |
|
|
$ |
2,542,914 |
|
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, |
||||||||||
|
|
2021 |
|
2020 |
||||||||
|
Revenue |
$ |
2,975,980 |
|
|
100.0% |
|
$ |
2,542,914 |
|
|
100.0% |
|
Transportation costs |
|
2,589,072 |
|
|
87.0% |
|
|
2,223,036 |
|
|
87.4% |
|
Gross margin |
|
386,908 |
|
|
13.0% |
|
|
319,878 |
|
|
12.6% |
|
|
|
|
|
|
|
|
|
|
|
||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
||
|
Salaries and benefits |
|
176,696 |
|
|
5.9% |
|
|
146,128 |
|
|
5.7% |
|
General and administrative |
|
63,058 |
|
|
2.1% |
|
|
76,151 |
|
|
3.0% |
|
Depreciation and amortization |
|
26,282 |
|
|
0.9% |
|
|
22,945 |
|
|
0.9% |
|
Total costs and expenses |
|
266,036 |
|
|
8.9% |
|
|
245,224 |
|
|
9.6% |
|
|
|
|
|
|
|
|
|
|
|
||
|
Operating income |
$ |
120,872 |
|
|
4.2% |
|
$ |
74,654 |
|
|
2.9% |
Revenue
Revenue increased 17.0% to $3.0 billion from $2.5 billion in 2020. Intermodal revenue increased 15.0% to $1.7 billion primarily due to a 14.8% increase in revenue per load. Logistics revenue increased 16.5% to $663.6 million due to growth of our retail supplier solutions services and the contribution of NSD, partially offset by the impact of lost customers. Truck brokerage revenue increased 38.0% to $420.5 million primarily due to a 40.2% increase in revenue per load, partially offset by a 1.6% decline in volume. Dedicated’s revenue increased 1.1% to $202.2 million due to growth with new and existing accounts, partially offset by business we exited.
Transportation Costs
Transportation cost increased 16.5% to $2.6 billion in 2021 from $2.2 billion in 2020. Transportation costs in 2021 consisted of purchased transportation costs of $2.1 billion and equipment and driver related costs of $508.7 million compared to 2020 purchased transportation costs of $1.8 billion and equipment and driver related costs of $471.9 million. The 18.8% increase in purchased transportation costs was primarily due to increased purchasing, increased fuel costs, higher per driver compensation, increased repositioning costs, and partially offset by a decrease in truck brokerage volume and decreased container stacking charges.
Gross Margin
Gross margin increased 21.0% to $386.9 million from $319.9 million in 2020. The $67.0 million gross margin increase was the result of increases in intermodal, logistics, and truck brokerage, partially offset by a decrease in dedicated. Intermodal gross margin increased primarily due to an increase in price and higher volumes, partially offset by increased purchased transportation costs and rail
17
costs. Logistics gross margin increased primarily due to actions we have taken to improve profitability, higher revenue, and the contribution of NSD, partially offset by higher warehousing costs. Truck brokerage gross margin increased due to revenue per load growth in both contractual and transactional freight, partially offset by the impact of higher purchased transportation costs and a 1.6% decline in volume. Dedicated gross margin decreased primarily due to business we exited, higher insurance, claims and repair costs.
Gross margin as a percentage of revenue increased to 13.0% in 2021 from 12.6% in 2020. Intermodal gross margin as a percentage of revenue increased 100 basis points due to higher pricing, partially offset by increased purchased transportation costs and drayage costs. Logistics gross margin as a percentage of revenue increased by 90 basis points due to our continuous improvement initiatives, and the addition of NSD. Truck brokerage gross margin as a percentage of revenue decreased 110 basis points as a result of increased purchase transportation costs. Dedicated gross margin as a percent of revenue declined 330 basis points compared to the prior year primarily due to changes in customer mix.
CONSOLIDATED OPERATING EXPENSES
Salaries and Benefits
Salaries and benefits expense increased $30.6 million to $176.7 million in 2021 from $146.1 million in 2020. As a percentage of revenue, Hub’s salaries and benefits increased to 5.9% in 2021 from 5.7% in 2020. The increase was primarily due the addition of NSD, increases in employee bonuses of $21.0 million, commissions expense of $3.0 million, and employee benefits and payroll taxes of $3.4 million.
General and Administrative
General and administrative expense decreased to $63.1 million in 2021 from $76.2 million in 2020. These expenses, as a percentage of revenue, decreased to 2.1% in 2021 from 3.0% in 2020. The decrease of $13.1 million was primarily due to the change in the gain on sale of transportation equipment of $9.1 million, a decrease of $5.4 million of expense related to donations of refrigerated trailers in support of COVID-19 efforts in 2020, a decrease in professional services of $4.1 million related primarily to two consulting projects completed in 2020, partially offset by $3.4 million of legal claims in 2021 and by the additional costs of NSD.
Depreciation and Amortization
Depreciation and amortization expense increased to $26.3 million in 2021 from $22.9 million in 2020 related primarily to the amortization of intangibles related to the acquisition of NSD and computer software.
Other Expense
Other expense decreased to $5.9 million in 2021 from $7.6 million in 2020 due to less average borrowings and lower average interest rates on existing borrowings.
Provision for Income Taxes
The provision for income taxes increased to $27.8 million in 2021 from $15.9 million in 2020 due primarily to significantly higher income in 2021. We provided for income taxes using an effective rate of 24.1% in 2021 and an effective rate of 23.7% in 2020. The slightly higher effective tax rate in 2021 is a result of higher state taxes in 2021 than 2020, largely offset by smaller adjustments to tax reserves in 2021 than 2020. We expect our effective tax rate for the full year of 2021 to be approximately 24%.
Net Income
Net income increased to $87.2 million in 2021 from $51.2 million in 2020 due primarily to increases in revenue and gross margin, partially offset by higher operating costs and expenses and income tax expense.
.
18
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2021, we funded operations, capital expenditures, finance leases, repayments of debt and the purchase of our stock related to employee withholding upon vesting of restricted stock through cash flows from operations, proceeds from the issuance of long-term debt and cash on hand. We believe that our cash on hand, cash flows from operations and borrowings available under our credit agreement will be sufficient to meet our cash needs for at least the next twelve months.
Cash provided by operating activities for the nine months ended September 30, 2021 was $178.1 million, which resulted primarily from net income of $87.2 million adjusted for non-cash items of $88.5 million and the change in operating assets and liabilities of $2.4 million.
Cash provided by operating activities increased $55.4 million in 2021 versus 2020. The increase was due to increases in net income of $36.0 million and operating assets and liabilities of $48.5 million, partially offset by decreases in non-cash items of $29.1 million.
The increase in the change of operating assets and liabilities of $48.5 million was caused by increases in the change of accrued expenses of $51.2 million, accounts payable of $20.3 million, accounts receivable of $5.8 million and prepaid taxes of $2.4 million, partially offset by increases in the cash flow used by prepaid expenses of $16.4 million, non-current liabilities of $12.8 million, other assets of $1.2 million and restricted investments of $0.8 million.
The lower amount of non-cash items of $29.1 million was due to a decrease in deferred taxes of $20.0 million, more gains on the sale of fixed assets of $9.1 million and other operating activities of $5.6 million. These decreases were partially offset by an increase in depreciation and amortization of $4.2 million and compensation expense related to stock-based compensation plans of $1.4 million.
Net cash used in investing activities for the nine months ended September 30, 2021 was $53.6 million which included capital expenditures of $84.1 million and cash used in acquisitions of $0.1 million, partially offset by proceeds from the sale of equipment of $30.6 million. Capital expenditures of $84.1 million related primarily to containers of $34.6 million, tractors of $28.2 million, technology investments of $12.8 million, trailers of $3.2 million and the remainder for construction of a new building on our corporate headquarters' campus.
We estimate capital expenditures for the remainder of 2021 will range from $66 million to $76 million and be used primarily for purchases of tractors and containers to support growth in our business, as well as technology investments and the new building construction. We plan to fund these expenditures with a combination of cash and debt.
Net cash used in investing activities for the nine months ended September 30, 2020 was $54.1 million. The net cash used in investing activities decreased $0.4 million in 2021 from 2020 due to an increase of $29.3 million of proceeds from the sale of equipment, partially offset by more capital expenditures related primarily to $28.2 million more of tractor purchases, $20.0 million more of container purchases and $1.7 million more of technology investments. These increases were partially offset by $14.6 million less of expenditures related to the construction of a new building on our corporate headquarters campus and $6.3 million less of trailer purchases.
The net cash used in financing activities for the nine months ended September 30, 2021 was $18.3 million, which resulted from the repayment of long-term debt of $82.8 million, stock withheld for payments of withholding taxes of $4.0 million and finance lease payments of $2.1 million, partially offset by proceeds from the issuance of debt of $70.7 million.
During the nine months ended September 30, 2020, we borrowed $100 million on our revolving loan facility under the credit agreement and repaid the $100 million, therefore these transactions did not affect the variance in cash used in financing activities between 2021 and 2020. The decrease in net cash used in financing activities of $33.7 million from 2021 versus 2020 was primarily due to more proceeds from the issuance of new debt on transportation equipment of $41.9 million, partially offset by increases in the repayment of long-term debt of $8.4 million.
In 2021, we expect our cash paid for income taxes to be more than in 2020 due to significantly higher book income in 2021. We expect our cash paid for taxes to be more than our income tax expense in 2021 due to unfavorable 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 will be remitted in December 2021 and the other half in December 2022.
We have standby letters of credit outstanding that expire in 2021 and 2022. As of September 30, 2021, the aggregate principal amount of our outstanding letters of credit were $41.3 million.
Our unused and available borrowings were $308.7 million as of September 30, 2021 and $312.3 million as of December 31, 2020. We were in compliance with our debt covenants under the credit agreement as of September 30, 2021 and December 31, 2020.
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. We are monitoring working capital on a daily basis and are in frequent communications with our customers.
19
I tem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk as of September 30, 2021 from that presented in our 2020 10-K.
I tem 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. As of September 30, 2021, 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, 2021.
(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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On December 9, 2020, we completed the acquisition of NSD. We are currently integrating processes, employees, technologies and operations associated with this acquisition. Management will continue to evaluate our internal controls over financial reporting as we complete this integration of business.
PART II. Oth er Information
Item 1. Legal Proceedings
During the nine months ended September 30, 2021, there have been no material developments in the legal proceedings disclosed in our 2020 10-K.
Item 1A. Risk Factors
Investing in shares of our stock involves certain risks, including those identified and described in Part I, Item 1A of our 2020 10-K, as well as those identified in 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.
Item 2. Unregistered Sales of Eq uity Securities and Use of Proceeds
On May 28, 2019 our Board of Directors authorized the purchase of up to $100 million of our Class A Common Stock. Under the program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. We made no purchases under this authorization during 2021 or 2020. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time.
We purchased 968 shares for $0.1 million during the third quarter of 2021 and 1,896 shares for $0.1 million during the third quarter of 2020 related to employee withholding upon vesting of restricted stock. The table below provides information on a monthly basis regarding the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the third quarter of 2021:
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Approximate Dollar Value of |
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Total |
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Total Number of |
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Shares that May Yet |
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Number of |
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Average |
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Shares Purchased as |
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Be Purchased Under |
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Shares |
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Price Paid |
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Part of Publicly |
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the Plan |
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Purchased |
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Per Share |
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Announced Plan |
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(in 000’s) |
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7/1/2021 - 7/31/2021 |
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703 |
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$ |
65.48 |
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- |
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$ |
- |
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8/1/2021 - 8/31/2021 |
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53 |
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$ |
67.38 |
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- |
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$ |
- |
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9/1/2021 - 9/30/2021 |
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212 |
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$ |
69.85 |
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- |
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$ |
- |
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Total |
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968 |
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$ |
66.54 |
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- |
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$ |
75,002 |
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Item 6. Exhibits
The exhibits included as part of this Form 10-Q are set forth in the Exhibit Index.
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EXHIBIT INDEX
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Exhibit No. |
Description |
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31.1 |
Certification of David P. Yeager, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
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31.2 |
Certification of Geoffrey F. DeMartino, Executive Vice President, Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
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32.1 |
Certification of David P. Yeager and Geoffrey F. DeMartino, Chief Executive Officer and Chief Financial Officer, respectively, Pursuant to 18 U.S.C. Section 1350. |
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101 |
Interactive data files for Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) the Consolidated Balance Sheets (unaudited); (ii) the Unaudited Consolidated Statements of Income and Comprehensive Income; (iii) the Unaudited Consolidated Statements of Stockholders’ Equity; (iv) the Unaudited Consolidated Statements of Cash Flows (unaudited); and (v) the Notes to Unaudited Consolidated Financial Statements . XBRL Instance Document-the XBRL Instance Document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. |
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104 |
The cover page from Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (formatted in Inline XBRL and included in Exhibit 101). |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HUB GROUP, INC. |
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DATE: |
November 5, 2021 |
/s/ Geoffrey F. DeMartino |
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Geoffrey F. DeMartino |
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Executive Vice President, Chief Financial |
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Officer and Treasurer |
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(Principal Financial Officer) |
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/s/ Kevin W. Beth |
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Kevin W. Beth |
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Executive Vice President, Chief Accounting |
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Officer |
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(Principal Accounting Officer) |
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22
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
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| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
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No information found
No Customers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|