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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) |
|
(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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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
On October 27, 2023
, the registrant had
HUB GROUP, INC.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HUB GROUP, INC.
C ONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|
|
September 30, |
|
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December 31, |
|
||
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|
2023 |
|
|
2022 |
|
||
|
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 |
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Other assets |
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TOTAL ASSETS |
$ |
|
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|
$ |
|
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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: $
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Common stock |
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Class A: $
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Class B: $
|
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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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) |
|
Retained earnings |
|
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|
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Accumulated other comprehensive loss |
|
(
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) |
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(
|
) |
|
Treasury stock; at cost,
|
|
(
|
) |
|
|
(
|
) |
|
TOTAL STOCKHOLDERS' EQUITY |
|
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|
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|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
|
|
|
$ |
|
|
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)
|
|
Three Months Ended |
|
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Nine Months Ended |
|
||||||||||
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September 30, |
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September 30, |
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||||||||||
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2023 |
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2022 |
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2023 |
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2022 |
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||||
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Operating revenue |
$ |
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$ |
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$ |
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$ |
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||||
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Operating expenses: |
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Purchased transportation and warehousing |
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Salaries and benefits |
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Depreciation and amortization |
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Insurance and claims |
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General and administrative |
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Gain on sale of assets, net |
|
(
|
) |
|
|
(
|
) |
|
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(
|
) |
|
|
(
|
) |
|
Total operating expenses |
|
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||||
|
Operating income |
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||||
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Other income (expense): |
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||||
|
Interest expense |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
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(
|
) |
|
Interest income |
|
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Other, net |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
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(
|
) |
|
Total other expense, net |
|
(
|
) |
|
|
(
|
) |
|
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(
|
) |
|
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(
|
) |
|
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||||
|
Income before provision for income taxes |
|
|
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||||
|
Provision for income taxes |
|
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||||
|
Net income |
|
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||||
|
Other comprehensive income: |
|
|
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|
||||
|
Foreign currency translation adjustments |
|
(
|
) |
|
|
(
|
) |
|
|
|
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|
|
(
|
) |
|
|
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|
||||
|
Total comprehensive income |
$ |
|
|
|
$ |
|
|
|
$ |
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|
|
$ |
|
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||||
|
Basic earnings per common share |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
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|
||||
|
Diluted earnings per common share |
$ |
|
|
|
$ |
|
|
|
$ |
|
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|
$ |
|
|
|
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|
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|
||||
|
Basic weighted average number of shares outstanding |
|
|
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|
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|
|
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|
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|
Diluted weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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|
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|||||||||
|
|
Class A & B |
|
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|
in Excess of |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
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|
|
||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Predecessor |
|
|
|
|
|
Other |
|
|
Treasury |
|
|
|
|
|||||||||||||||
|
|
Shares |
|
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|
Paid-in |
|
|
Basis, Net |
|
|
Retained |
|
|
Comprehensive |
|
|
Stock |
|
|
|
|
||||||||||||
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
of Tax |
|
|
Earnings |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
|||||||||
|
Balance June 30, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of treasury stock from related party |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Balance September 30, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance June 30, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Balance September 30, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance December 31, 2021 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of treasury stock from related party |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Balance September 30, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance December 31, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Balance September 30, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Note: Some amounts may not foot due to rounding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
See notes to unaudited consolidated financial statements.
5
HUB GROUP, INC.
U NAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net income |
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Impairment of right-of-use asset |
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
|
|
|
(
|
) |
|
Compensation expense related to share-based compensation plans |
|
|
|
|
|
|
|
|
Gain on sale of assets |
|
(
|
) |
|
|
(
|
) |
|
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 provided by (used in) acquisitions |
|
|
|
|
|
(
|
) |
|
Net cash used in investing activities |
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Purchase of treasury stock |
|
(
|
) |
|
|
(
|
) |
|
Repayments of long-term debt |
|
(
|
) |
|
|
(
|
) |
|
Stock withheld for payments of withholding taxes |
|
(
|
) |
|
|
(
|
) |
|
Finance lease payments |
|
(
|
) |
|
|
(
|
) |
|
Proceeds from issuance of debt |
|
|
|
|
|
|
|
|
Purchase of treasury stock from related party |
|
|
|
|
|
(
|
) |
|
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
Our 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, 2023 and results of operations for the three and nine months ended September 30, 2023 and 2022.
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, 2022 (the “2022 10-K”). Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
Reclassifications: Due to presentation changes made in our consolidated income statement, certain prior year amounts have been reclassified to conform with the current year presentation.
NOTE 2. 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, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Dilutive effect of restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share - basic |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share - diluted |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 3. Segment Reporting
As we have continued to expand our service offerings and diversify our business, we have also made changes to the financial information that our CEO, who has been identified as our Chief Operating Decision Maker (CODM), uses to make operating and capital decisions. Beginning with the first quarter of 2023, we concluded that we had
7
Intermodal and Transportation Solutions.
Our Intermodal and Transportation Solutions segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment includes our trucking operations which provides our customers with local pickup and delivery (referred to as “drayage”) as well as high service local and regional trucking transportation using equipment dedicated to their needs. We arrange for the movement of our customers’ freight in one of our approximately
Logistics . Our Logistics segment offers a wide range of services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery. These services include a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed, all of which is provided by third party carriers with whom we contract. We also leverage proprietary technology along with collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our ITS segment.
Separate balance sheets are not prepared by segment, and as a result, assets are not separately identifiable or presented by segment. Our CEO uses consolidated asset information to make capital decisions.
The following tables summarize our financial and operating data by segment (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
Operating Revenue |
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Intermodal and Transportation Solutions |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Logistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment eliminations |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Total operating revenue |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
Operating Income |
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Intermodal and Transportation Solutions |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Logistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
Depreciation and Amortization |
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Intermodal and Transportation Solutions |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Logistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 4. Fair Value Measurement
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of September 30, 2023 and December 31, 2022. As of September 30, 2023, the fair value of the Company’s fixed-rate borrowings was $
8
We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of September 30, 2023 and December 31, 2022, our cash and temporary investments were with high quality financial institutions in demand deposit accounts, savings accounts, checking accounts and money market accounts.
Restricted investments included $
NOTE 5. Long-Term Debt and Financing Arrangements
In February 2022, we entered into a
We have
standby letters of credit that expire in
As of September 30, 2023 and December 31, 2022
, we had
We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers, containers and refrigeration units. The Notes are secured by the underlying equipment financed in the agreements.
9
Our outstanding Notes are as follows (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
|
Interim funding for equipment received and expected to be converted to an equipment note in subsequent year; 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 |
$ |
|
|
|
$ |
|
|
NOTE 6. Legal Matters
The Company is involved in certain claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits involving employment related claims. Based on management's present knowledge, management does not believe that any potential unrecorded 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 for settlements or losses determined to be probable and estimable. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
NOTE 7. Subsequent Event
In October 2023, our Board of Directors (the "Board") authorized the purchase of up to $
10
I tem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements in this section and other parts of this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements, provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that might cause the actual performance of the Company to differ materially from those expressed or implied by this discussion and, therefore, should be viewed with caution. Further information on the risks that may affect the Company’s business is included in filings it makes with the SEC from time to time, including those discussed under the “Risk Factors” section in the 2022 10-K and subsequent filings. The Company assumes no obligation to update any such forward-looking statements.
EXECUTIVE SUMMARY
We are a leading supply chain solutions provider in North America that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract. Our services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Other services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, final mile delivery, parcel and international services.
We service a large and diversified customer base in a broad range of industries, including retail, consumer products and durable goods. We believe our strategy to offer multi-modal supply chain management solutions serves to strengthen and deepen our relationships with our customers and allows us to provide a more cost effective and higher service solution.
Beginning in first quarter 2023, we have two reportable segments - Intermodal and Transportation Solutions, and Logistics, which are based primarily on the services each segment provides. Results for the three and nine months ended September 30, 2022, have been recast to conform with the current period presentation.
Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment includes our trucking operations which provides our customers with local pickup and delivery as well as high service local and regional trucking transportation using equipment dedicated to their needs. In 2023, approximately 77% of our drayage services was provided by our own fleet. We arrange for the movement of our customers’ freight in one of our approximately 50,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Drayage between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. As of September 30, 2023, our trucking transportation operation consisted of approximately 2,300 tractors, 3,100 employee drivers and 4,400 trailers. We also contract for services with approximately 480 independent owner-operators.
Logistics . Our Logistics segment offers a wide range of services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery. These services include a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed, all of which is provided by third party carriers with whom we contract. We also leverage proprietary technology along with collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our ITS segment. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our business operates or has access to approximately 10 million square feet of warehousing and cross-dock space across North America, to which our customers ship their goods to be stored and distributed to destinations including residences, retail stores and other commercial locations. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.
In August 2022, we acquired TAGG Logistics, LLC which enhanced our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs. The acquisition added scale to our logistics segment.
11
We are working on several yield enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and improving low profit freight. Hub’s top 50 customers represent approximately 63% of revenue for the nine months ended September 30, 2023, while one customer accounted for more than 10% of our revenue for the nine months ended September 30, 2023. We use various performance indicators to manage our business. We closely monitor profit levels for our top customers. We also evaluate on-time performance, customer service, cost per load and outstanding accounts receivable by customer. Vendor cost changes and vendor service levels are also monitored closely.
Uncertainties and risks to our outlook include the following: inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, rising inflation, increases in interest rates, an economic recession and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers’ inventory levels, the ability of customers to pay our accounts receivable, a significant increase in transportation supply in the marketplace, aggressive pricing actions by our competitors and any inability to pass cost increases, such as transportation and warehouse costs, through to our customers, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2023.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
The following table summarizes our operating revenue by segment (in thousands):
|
|
Three Months Ended |
|
|||||
|
Operating Revenue |
September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Intermodal and Transportation Solutions |
$ |
595,308 |
|
|
$ |
856,001 |
|
|
Logistics |
|
460,309 |
|
|
|
525,178 |
|
|
Inter-segment eliminations |
|
(30,782 |
) |
|
|
(25,772 |
) |
|
Total operating revenue |
$ |
1,024,835 |
|
|
$ |
1,355,407 |
|
The following table summarizes our operating income by segment (in thousands):
|
|
Three Months Ended |
|
|||||
|
Operating Income |
September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Intermodal and Transportation Solutions |
$ |
13,484 |
|
|
$ |
86,772 |
|
|
Logistics |
|
29,071 |
|
|
|
30,966 |
|
|
Total operating income |
$ |
42,555 |
|
|
$ |
117,738 |
|
Total consolidated operating revenue decreased 24% to $1,025 million in 2023 from $1,355 million in 2022.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 30% to $595 million primarily due to a 16% decrease in intermodal volume due to low transportation demand and an oversupply of truckload carrier capacity, a 20% decrease in intermodal revenue per load (primarily due to lower price, fuel prices and mix) and a 6% decline in dedicated revenues due to lost customers partially offset by growth with existing and new customers.
ITS operating income decreased to $13 million, 2% of revenue, as compared to $87 million, 10% of revenue in the prior year, due to lower customer rates, volume and accessorials. These headwinds were partially offset by lower drayage costs, rail expenses and equipment costs. In third quarter 2023, we increased the portion of drayage handled on our own fleet to 78% as compared to 62% in the prior year.
Logistics revenue decreased 12% to $460 million primarily driven by lower revenue per load in our brokerage service line, partially offset by performance of our managed transportation, consolidation and final mile service lines, as well as contribution from our fulfillment business. Brokerage volumes increased 5% compared to the prior year. Operating income was 6% of revenue in both 2023 and 2022. Operating income was $29 million as compared to $31 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.
12
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue (in thousands):
|
|
Three Months Ended |
||||||||
|
|
September 30, |
||||||||
|
|
2023 |
|
|
|
2022 |
|
|
||
|
|
|
|
|
|
|
|
|
||
|
Operating revenue |
$ |
1,024,835 |
|
100.0% |
|
$ |
1,355,407 |
|
100.0% |
|
|
|
|
|
|
|
|
|
||
|
Operating expenses: |
|
|
|
|
|
|
|
||
|
Purchased transportation and warehousing |
|
772,650 |
|
75.4% |
|
|
1,023,052 |
|
75.5% |
|
Salaries and benefits |
|
138,503 |
|
13.5% |
|
|
137,666 |
|
10.1% |
|
Depreciation and amortization |
|
36,065 |
|
3.5% |
|
|
33,542 |
|
2.5% |
|
Insurance and claims |
|
11,681 |
|
1.1% |
|
|
17,615 |
|
1.3% |
|
General and administrative |
|
24,146 |
|
2.4% |
|
|
34,382 |
|
2.5% |
|
Gain on sale of assets, net |
|
(765 |
) |
-0.1% |
|
|
(8,588 |
) |
-0.6% |
|
Total operating expenses |
|
982,280 |
|
95.8% |
|
|
1,237,669 |
|
91.3% |
|
|
|
|
|
|
|
|
|
||
|
Operating income |
$ |
42,555 |
|
4.2% |
|
$ |
117,738 |
|
8.7% |
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 24% to $773 million in 2023 from $1,023 million in 2022.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs and decreased use of third-party carriers for drayage in ITS.
Salaries and Benefits
Salaries and benefits increased to $139 million in 2023 from $138 million in 2022. As a percentage of revenue, salaries and benefits increased to 13.5% in 2023 from 10.1% in 2022.
This increase was primarily due to $19 million of incremental expense related to growth of our driver and warehouse employees which includes a $2 million increase in medical claims, as well as increased expenses resulting from TAGG, which incurred three months of expenses in 2023 as compared to just over one month of expenses in 2022. These increases were partially offset by an $18 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.
Headcount, which includes drivers, warehouse personnel and office employees, was 5,610 and 5,783 as of September 30, 2023 and 2022, respectively. The decrease in headcount of office and warehouse employees was partially offset by increases in the number of drivers as we have expanded the portion of drayage handled by our own fleet.
Depreciation and Amortization
Depreciation and amortization expense increased to $36 million in 2023 from $34 million in 2022. This increase was primarily due to increased container, tractor and warehouse equipment depreciation expense as well as the amortization of intangibles related to the acquisition of TAGG. This expense, as a percentage of revenue, increased to 3.5% in 2023 from 2.5% in 2022. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.
Insurance and Claims
Insurance and claims expense decreased to $12 million in 2023 from $18 million in 2022. This decrease was primarily due to less claim expenses related to both auto liability and workers compensation claims in 2023. These expenses, as a percentage of revenue, decreased to 1.1% in 2023 from 1.3% in 2022.
General and Administrative
General and administrative expenses decreased to $24 million in 2023 from $34 million in 2022. These expenses, as a percentage of revenue, decreased to 2.4% in 2023 from 2.5% in 2022.
This expense decrease was primarily due to higher 2022 expenses resulting from an impairment charge of a right-of-use asset, higher use tax expense and higher legal expense. These decreases were partially offset by higher rent expense and increased expenses resulting from TAGG, which incurred three months of expenses in 2023 as compared to just over one month of expenses in 2022.
13
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $1 million in 2023 from $9 million in 2022. This decrease resulted from both less units sold and a lower average gain per unit sold in 2023 as compared to 2022.
Other Income (Expense)
Interest expense increased to $4 million in 2023 from $2 million in 2022 due primarily to higher interest rates on our debt and higher debt balances. This expense increase was partially offset by increased interest income of $3 million in 2023 due to higher interest rates on our cash balance and higher cash balances. These changes resulted in Other Expense decreasing to $1 million in 2023 from $3 million in 2022.
Provision for Income Taxes
The provision for income taxes decreased to $11 million in 2023 from $28 million in 2022 due a decrease in pre-tax income. We provided for income taxes using an effective rate of 26.9% in 2023 and an effective rate of 24.2% in 2022. The third quarter 2023 effective tax rate of 26.9% was adversely affected by a reduction in the expected use of state income tax credits and larger permanent differences in 2023.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
The following table summarizes our operating revenue by segment (in thousands):
|
|
Nine Months Ended |
|
|||||
|
Operating Revenue |
September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Intermodal and Transportation Solutions |
$ |
1,919,189 |
|
|
$ |
2,507,722 |
|
|
Logistics |
|
1,382,999 |
|
|
|
1,614,775 |
|
|
Inter-segment eliminations |
|
(84,626 |
) |
|
|
(67,510 |
) |
|
Total operating revenue |
$ |
3,217,562 |
|
|
$ |
4,054,987 |
|
The following table summarizes our operating income by segment (in thousands):
|
|
Nine Months Ended |
|
|||||
|
Operating Income |
September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Intermodal and Transportation Solutions |
$ |
94,639 |
|
|
$ |
273,069 |
|
|
Logistics |
|
88,190 |
|
|
|
97,365 |
|
|
Total operating income |
$ |
182,829 |
|
|
$ |
370,434 |
|
Total consolidated operating revenue decreased 21% to $3,218 million in 2023 from $4,055 million in 2022.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 23% to $1,919 million primarily due to a 15% decrease in intermodal volume due to low transportation demand and an oversupply of truckload carrier capacity, a 12% decrease in intermodal revenue per load (primarily due to lower price, fuel prices and mix) and a 3% decline in dedicated revenues due to lost customers partially offset by growth with existing and new customers.
ITS operating income decreased to $95 million, 5% of revenue, as compared to $273 million, 11% of revenue in the prior year due to lower volume, lower customer rates, higher equipment costs and lower surcharges and accessorial income. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 77% in the first nine months of 2023 as compared to 61% in the prior year, as well as an improvement in profitability at our Dedicated service line.
Logistics revenue decreased 14% to $1,383 million primarily driven by lower revenue per load in our brokerage service line and lower managed transportation service line revenue, partially offset by an increase in fulfillment revenue. Brokerage volumes increased 1% compared to the prior year. Operating income was 6% of revenue in both 2023 and 2022. Operating income was $88 million as compared to $97 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.
14
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue (in thousands):
|
|
Nine Months Ended |
||||||||
|
|
September 30, |
||||||||
|
|
2023 |
|
|
|
2022 |
|
|
||
|
|
|
|
|
|
|
|
|
||
|
Operating revenue |
$ |
3,217,562 |
|
100.0% |
|
$ |
4,054,987 |
|
100.0% |
|
|
|
|
|
|
|
|
|
||
|
Operating expenses: |
|
|
|
|
|
|
|
||
|
Purchased transportation and warehousing |
|
2,403,190 |
|
74.7% |
|
|
3,081,299 |
|
76.0% |
|
Salaries and benefits |
|
417,757 |
|
13.0% |
|
|
395,904 |
|
9.8% |
|
Depreciation and amortization |
|
106,899 |
|
3.3% |
|
|
97,075 |
|
2.4% |
|
Insurance and claims |
|
36,041 |
|
1.1% |
|
|
37,553 |
|
0.9% |
|
General and administrative |
|
76,445 |
|
2.4% |
|
|
93,819 |
|
2.3% |
|
Gain on sale of assets, net |
|
(5,599 |
) |
-0.2% |
|
|
(21,097 |
) |
-0.5% |
|
Total operating expenses |
|
3,034,733 |
|
94.3% |
|
|
3,684,553 |
|
90.9% |
|
|
|
|
|
|
|
|
|
||
|
Operating income |
$ |
182,829 |
|
5.7% |
|
$ |
370,434 |
|
9.1% |
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 22% to $2,403 million in 2023 from $3,081 million in 2022.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs and decreased use of third-party carriers for drayage in ITS.
Salaries and Benefits
Salaries and benefits increased to $418 million in 2023 from $396 million in 2022. As a percentage of revenue, salaries and benefits increased to 13.0% in 2023 from 9.8% in 2022.
This increase was primarily due to $78 million of incremental expense related to growth of our driver and warehouse employees which includes a $4 million increase in medical claims, as well as increased expenses resulting from TAGG, which incurred nine months of expenses in 2023 as compared to just over four months of expenses in 2022. These increases were partially offset by a $56 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.
Depreciation and Amortization
Depreciation and amortization expense increased to $107 million in 2023 from $97 million in 2022. This increase was primarily due to increased container, tractor and warehouse equipment depreciation expense as well as the amortization of intangibles related to the acquisition of TAGG. This expense, as a percentage of revenue, increased to 3.3% in 2023 from 2.4% in 2022. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.
Insurance and Claims
Insurance and claims expense decreased to $36 million in 2023 from $38 million in 2022. This decrease was primarily due to less claim expenses related to both auto liability and workers compensation claims in 2023. These expenses, as a percentage of revenue, increased to 1.1% in 2023 from 0.9% in 2022.
General and Administrative
General and administrative expenses decreased to $76 million in 2023 from $94 million in 2022. These expenses, as a percentage of revenue, increased to 2.4% in 2023 from 2.3% in 2022.
This expense decrease was primarily due to decreases in legal and acquisition-related expenses, use tax expense, professional services expense including IT software expense, less impairment of a right-of-use asset, bad debt expense and outside sales commissions, partially offset by higher rent expense, increased expenses resulting from TAGG, which incurred nine months of expenses in 2023 as compared to just over one month of expenses in 2022 and higher temporary labor expense.
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $6 million in 2023 from $21 million in 2022. This decrease resulted from both less units sold and a lower average gain per unit sold in 2023 as compared to 2022.
15
Other Income (Expense)
Interest expense increased to $10 million in 2023 from $5 million in 2022 due primarily to higher interest rates on our debt and higher average debt balances. This expense increase was partially offset by increased interest income of $6 million in 2023 due to higher interest rates on our cash balance and higher cash balances. These changes resulted in Other Expense decreasing to $3 million in 2023 from $6 million in 2022.
Provision for Income Taxes
The provision for income taxes decreased to $41 million in 2023 from $87 million in 2022 due a decrease in pre-tax income. We provided for income taxes using an effective rate of 22.7% in 2023 and an effective rate of 23.9% in 2022. The lower effective tax rate in 2023 resulted primarily from a change in state apportionment methodology.
LIQUIDITY AND CAPITAL RESOURCES
Our financing and liquidity strategy is to fund operating cash payments and future dividends through cash received from the provision of services, cash on hand, and to a lesser extent, from cash received from the sale of equipment. As of September 30, 2023, we had $401 million of cash and cash equivalents and $20 million of restricted investments. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. In prior years, we have funded our business acquisitions from cash on hand. Payments for our other investing activities, such as the construction of our office buildings and our capitalized technology investments, have been funded by cash on hand or cash flows from operations. Cash used in financing activities including the purchase of treasury stock has been funded by cash from operations or cash on hand. We have not historically used our Credit Facility to fund our operating, investing, or financing cash needs, though it is available to fund future cash requirements as needed. Based on past performance and current expectations, we believe cash on hand and cash received from the provision of services, along with other financing sources, will provide us the necessary capital to fund transactions and achieve our planned growth for the next twelve months and the foreseeable future.
Cash provided by operating activities for the nine months ended September 30, 2023 was $323 million, which resulted primarily from net income of $139 million plus non-cash charges of $168 million and changes in operating assets and liabilities of $16 million.
Cash provided by operating activities totaled $323 million in 2023 compared to $350 million in 2022. The $28 million decrease in cash flow was primarily due to a decrease in net income of $139 million, partially offset by an increase in non-cash charges of $59 million and an increase in the change in assets and liabilities of $52 million.
Net cash used in investing activities for the nine months ended September 30, 2023 was $85 million which included capital expenditures of $106 million, partially offset by proceeds from the sale of equipment of $20 million. Capital expenditures of $106 million related primarily to tractors of $50 million, containers of $34 million, technology investments of $11 million, warehouse equipment of $9 million and leasehold improvements of $2 million.
Capital expenditures decreased by approximately $52 million in 2023 as compared to 2022. The 2023 decrease was due to decreased container purchases of $39 million, less spend on our corporate headquarters of $17 million and technology investments of $8 million. These decreases were partially offset by more purchases of warehouse equipment of $9 million, tractors of $2 million and the remainder related to leasehold improvements in 2023.
In 2023, we estimate capital expenditures will range from $140 million to $150 million. This range is lower than the estimate we disclosed in our 2022 10-K of $170 million to $190 million, as we have reduced our planned purchase of containers in 2023. We expect transportation equipment purchases to range from $116 million to $124 million and technology and other investments will range from $24 million to $26 million. We plan to fund these expenditures with a combination of cash and debt.
Net cash used in financing activities for the nine months ended September 30, 2023 was $123 million which includes cash used for the purchase of treasury stock of $117 million, repayments of long-term debt of $81 million, cash used for stock tendered for payments of withholding taxes of $8 million and finance lease payments of $2 million, partially offset by proceeds from the issuance of debt of $85 million. Debt incurred in 2023 was used to fund the purchase of transportation equipment.
The $51 million increase in cash used in financing activities for 2023 versus 2022 was primarily due to a decrease in proceeds from the issuance of debt of $42 million, an increase in the purchase of treasury stock of $7 million and an increase in cash paid for stock related to employee withholding taxes of $2 million.
As a result of anticipated favorable timing differences, primarily related to depreciation and compensation, we expect our cash paid for income taxes in 2023 to be less than our income tax expense.
See Note 5 of the consolidated financial statements for details related to interest rates and commitment fees.
We have standby letters of credit that expire in 2023 and 2024. As of September 30, 2023 and December 31, 2022, our letters of credit were $1 million and $43 million, respectively.
16
As of September 30, 2023, and December 31, 2022, we had no borrowings under the Credit Agreement and our unused and available borrowings were $349 million and $307 million, respectively. We were in compliance with our debt covenants as of September 30, 2023 and December 31, 2022.
We are continually evaluating the possible effects of current economic conditions and reasonable and supportable economic forecasts in operational cash flows, including the risks of declines in the overall freight market and our customers’ liquidity and ability to pay. We are monitoring working capital on a daily basis and are in frequent communications with our customers.
I tem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk as of September 30, 2023 from that presented in our 2022 10-K.
I tem 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. As of September 30, 2023, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
(b) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. Oth er Information
Item 1. Legal Proceedings
For information regarding legal proceedings, see Note 6 “Legal Matters” to the Consolidated Financial Statements included in Part I, Item 1. “Financial Statements.”
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 2022 10-K under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, the Company’s business and stock price can be materially and adversely affected. There have been no material changes to the Company’s risk factors since the 2022 Form 10-K.
Item 2. Unregistered Sales of Eq uity Securities and Use of Proceeds
In October 2022, the Board authorized the purchase of up to $200 million of our Class A Common Stock pursuant to a share repurchase program (the “ 2022 Program ” ). Under the 2022 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. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended or discontinued at any time. We purchased 1,531,755 shares for $117.3 million under this authorization during the first nine months of 2023. The 2022 Program was terminated in October 2023 in conjunction with the authorization of the 2023 Program.
In October 2023, the Board authorized the purchase of up to $250 million of our Class A Common Stock pursuant to a share repurchase program (the “ 2023 Program ” ), which replaces the 2022 Program. Under the 2023 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. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended or discontinued at any time.
17
We purchased 2,324 shares for $0.2 million during the third quarter of 2023 related to withholding upon vesting of restricted stock. The table below includes information on a monthly basis regarding the number of shares delivered to us to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the third quarter of 2023. These shares do not reduce the repurchase authority under the 2022 Program.
|
|
|
|
|
|
|
|
|
|
|
Maximum Value of |
|
||||
|
|
Total |
|
|
|
|
|
Total Number of |
|
|
Shares that May Yet |
|
||||
|
|
Number of |
|
|
Average |
|
|
Shares Purchased as |
|
|
Be Purchased Under |
|
||||
|
|
Shares |
|
|
Price Paid |
|
|
Part of the |
|
|
the 2022 Program |
|
||||
|
|
Purchased |
|
|
Per Share |
|
|
2022 Program |
|
|
(in 000’s) |
|
||||
|
July 2023 |
|
993 |
|
|
$ |
79.78 |
|
|
|
- |
|
|
$ |
100,000 |
|
|
August 2023 |
|
209,603 |
|
|
$ |
83.12 |
|
|
|
208,330 |
|
|
$ |
82,678 |
|
|
September 2023 |
|
58 |
|
|
$ |
79.33 |
|
|
|
- |
|
|
$ |
82,678 |
|
|
Total |
|
210,654 |
|
|
$ |
83.11 |
|
|
|
208,330 |
|
|
$ |
82,678 |
|
Item 5. Other Information
None of the Company’s directors or officers
Item 6. Exhibits
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Exhibit No. |
Description |
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3.1 |
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31.1 |
Rule 13a-14(a) Certification of Phillip D. Yeager, Chief Executive Officer. |
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31.2 |
Rule 13a-14(a) Certification of Geoffrey F. DeMartino, Chief Financial Officer. |
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32.1 |
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101 |
Inline XBRL Document Set for the unaudited consolidated financial statements and accompanying notes in Part 1, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
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104 |
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q included in the exhibit 101 Inline XBRL Document Set. |
18
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 3, 2023 |
/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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19