Hub Group Inc

Previous wording

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 the first quarter of 2024, 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 March 31, 2024, our trucking transportation operation consisted of approximately 2,300 tractors, 2,900 employee drivers and 4,300 trailers. We also contract for services with approximately 400 independent owner-operators. These assets and contractual services are used to support drayage for our intermodal service offering and to serve our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations.

Current wording

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 the first six months of 2024, approximately 75% of our drayage services was provided by our own fleet. We arrange for the movement of our customers’ freight in one of our approximately 50,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Drayage between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. As of June 30, 2024, our trucking transportation operation consisted of approximately 2,200 tractors, 2,900 employee drivers and 4,300 trailers. We also contract for services with approximately 400 independent owner-operators. These assets and contractual services are used to support drayage for our intermodal service offering and to serve our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations.

Previous wording

Logistics. Our Logistics segment offers a wide range of non-asset-based services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery. Logistics includes our brokerage business which consists of a full range of trucking transportation services, including dry van, expedited, less-than-truckload (“LTL”), refrigerated and flatbed, all of which is provided by third-party carriers with whom we contract. We leverage proprietary technology along with collaborative relationships with third-party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our ITS segment. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our final mile delivery offering provides residential final mile delivery and installation of appliances and big and bulky goods. Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States. Our business operates or has access to approximately 11 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.

Current wording

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

Previous wording

On December 20, 2023, we acquired 100% of the equity interests of Forward Air Final Mile (“FAFM”). Total consideration for the transaction was approximately $261 million in cash.

Current wording

On December 20, 2023, we acquired 100% of the equity interest of Forward Air Final Mile (“FAFM”). Total consideration for the transaction was $257.2 million. $260.9 million was paid in cash in December 2023 while $3.7 million was received from the seller in the second quarter of 2024 as part of the post-closing true-up of net working capital.

Previous wording

We are focused on several margin enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and improving low profit freight. Hub’s top 50 customers represent approximately 71% of revenue for the three months ended March 31, 2024, while one customer accounted for more than 10% of our quarterly revenue in both segments in both 2024 and 2023. We use various performance indicators to manage our business. We closely monitor operating cash flow, profit levels for our top customers, daily sales outstanding by customer account and vendor cost changes. On-time performance, customer service, cost per load and vendor service levels are also monitored closely.

Current wording

We are focused on several margin enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and improving low profit freight. Hub’s top 50 customers represent approximately 71% of revenue for the six months ended June 30, 2024, while one customer accounted for more than 10% of our revenue in both segments for both the six months ended June 30, 2024 and 2023. We use various performance indicators to manage our business. We closely monitor operating cash flow, profit levels for our top customers, daily sales outstanding by customer account and vendor cost changes. On-time performance, customer service, cost per load and vendor service levels are also monitored closely.

Previous wording

The following table includes the one customer that represented 10% or more of our quarterly revenue by segment for the three months ending March 31, 2024 and 2023, respectively:

Current wording

The following table includes the one customer that represented 10% or more of our revenue by segment for the six months ending June 30, 2024 and 2023, respectively:

Previous wording

Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, 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 2024. Exiting of truckload capacity, retail inventory levels declining leading to restocking demand, a return of typical shipping peak season demands and a stronger used tractor market could have a materially positive impact on our revenue, profitability and cash flows in 2024.

Current wording

Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, 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, elevated levels of 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 2024. Exiting of truckload capacity, retail inventory levels declining leading to restocking demand, a return of typical shipping peak season demands and a stronger used tractor market could have a materially positive impact on our revenue, profitability and cash flows in 2024.

Previous wording

Total consolidated operating revenue decreased 13% to $999 million in 2024 from $1,152 million in 2023.

Current wording

Total consolidated operating revenue decreased 5% to $986 million in 2024 from $1,040 million in 2023.

Previous wording

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

Current wording

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

Previous wording

Purchased transportation and warehousing costs decreased 15% to $740 million in 2024 from $867 million in 2023. As a percentage of revenue, purchased transportation and warehousing costs decreased to 74.1% in 2024 from 75.2% in 2023.

Current wording

Purchased transportation and warehousing costs decreased 5% to $727 million in 2024 from $764 million in 2023. As a percentage of revenue, purchased transportation and warehousing costs increased to 73.7% in 2024 from 73.4% in 2023.

Previous wording

Headcount, which includes drivers, warehouse personnel and office employees, was 5,897, which includes 548 employees of FAFM, as of March 31, 2024 and 6,065 as of March 31, 2023, respectively. The decrease in headcount related primarily to drivers, partially offset by increases in office and warehouse employees due to the FAFM acquisition.

Current wording

Headcount, which includes drivers, warehouse personnel and office employees, was 5,813, which includes 582 employees of FAFM, as of June 30, 2024 and 5,851 as of June 30, 2023, respectively. The decrease in headcount related primarily to drivers, partially offset by increases in office and warehouse employees due to the FAFM acquisition.

Previous wording

Depreciation and amortization expense increased to $38 million in 2024 from $35 million in 2023. This increase was related primarily to increased technology, container and warehouse depreciation expense as well as the amortization of intangibles related to the acquisition of FAFM, which was acquired in December 2023. This expense, as a percentage of revenue, increased to 3.8% in 2024 from 3.1% in 2023. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

Current wording

Depreciation and amortization expense increased to $38 million in 2024 from $35 million in 2023. This increase was related primarily to the amortization of intangibles related to the acquisition of FAFM on December 20, 2023, as well as increased technology, container and warehouse depreciation expense. This expense, as a percentage of revenue, increased to 3.8% in 2024 from 3.4% in 2023. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

Previous wording

General and administrative expenses increased to $27 million in 2024 from $26 million in 2023. These expenses, as a percentage of revenue, increased to 2.7% in 2024 from 2.2% in 2023.

Current wording

General and administrative expenses increased to $28 million in 2024 from $27 million in 2023. These expenses, as a percentage of revenue, increased to 2.8% in 2024 from 2.6% in 2023.

Previous wording

Net gains on the sale of equipment decreased to $0.5 million in 2024 from $4 million in 2023. This decrease resulted from both less units sold and a lower average gain per unit sold in 2024 as compared to 2023.

Current wording

Net gains on the sale of equipment decreased to $0.4 million in 2024 from $1 million in 2023. This decrease resulted from both less units sold and a lower average gain per unit sold in 2024 as compared to 2023.

Previous wording

Other Expense increased to $3 million in 2024 from $2 million in 2023. Interest expense increased to $4 million in 2024 from $3 million in 2023 due primarily to higher interest rates on our debt and higher average debt balances. Interest income remained consistent at $1 million in both 2024 and 2023.

Current wording

Other expense increased to $2 million in 2024 from $1 million in 2023 primarily due to an increase in interest expense due to higher interest rates on our debt.

Previous wording

The provision for income taxes decreased to $7 million in 2024 from $15 million in 2023. We provided for income taxes using an effective rate of 21.5% in 2024 and an effective rate of 19.4% in 2023. The first quarter 2024 effective tax rate of 21.5% exceeded the rate from 2023 as we received a one-time benefit from amending state tax returns in 2023.

Current wording

The provision for income taxes decreased to $9 million in 2024 from $15 million in 2023 due primarily to lower pre-tax income in 2024. We provided for income taxes using an effective rate of 22.8% in 2024 and an effective rate of 23.9% in 2023. The second quarter 2024 effective tax rate of 22.8% was lower than the rate from 2023, as in 2024 we received a one-time benefit from amending state tax returns.

Previous wording

Intermodal and Transportation Solutions (“ITS”) revenue decreased 22% to $552 million primarily due to a 16% decrease in intermodal revenue per load (primarily due to lower fuel revenue, lower accessorial revenue, price declines and mix), a 10% decline in intermodal volume due to lower transportation demand, partially offset by a 1% increase in dedicated revenue resulting from growth of existing customers. ITS operating income decreased to $13 million, 2.4% of revenue, as compared to $49 million, 7.0% of revenue, in the prior year due lower customer rates, lower accessorial revenue, and lower volume. These headwinds were partially offset by lower drayage costs, lower equipment costs and lower accessorial costs.

Current wording

Intermodal and Transportation Solutions (“ITS”) revenue decreased 16% to $1,113 million primarily due to price declines, lower fuel revenue, lower accessorial revenue, a 1% decline in intermodal volume due to lower transportation demand and mix, partially offset by a 3% increase in dedicated revenue resulting from growth of existing customers. ITS operating income decreased to $27 million, 2.4% of revenue, as compared to $81 million, 6.1% of revenue, in the prior year, due to lower customer rates, lower accessorial revenue and lower volume. These headwinds were partially offset by lower drayage costs, lower equipment costs and lower accessorial costs.

Previous wording

Logistics revenue increased 2% to $480 million primarily due to the recent acquisition in final mile, partially offset by lower revenue in our brokerage service line and consolidation and fulfillment service lines. Brokerage revenue per load declined 17% due to lower pricing, fuel and customer mix partially offset by 1% growth in volume. Logistics operating income decreased to $24 million, 5.0% of revenue, as compared to $29 million, 6.1% of revenue, due to lower brokerage margins partially offset by our recent acquisition in final mile.

Current wording

Logistics revenue increased 2% to $939 million primarily due to the recent acquisition in final mile, partially offset by lower revenue in our brokerage service line and consolidation and fulfillment service lines. Brokerage revenue per load declined 16% due to lower pricing, fuel and customer mix. Brokerage volume declined by 1%. Logistics operating income decreased to $50 million, 5.3% of revenue, as compared to $59 million, 6.4% of revenue, due to lower brokerage margins, partially offset by our recent acquisition in final mile.

Previous wording

Salaries and benefits increased to $144 million in 2024 from $137 million in 2023. As a percentage of revenue, salaries and benefits increased to 14.4% in 2024 from 11.9% in 2023.

Current wording

Salaries and benefits increased to $286 million in 2024 from $279 million in 2023. As a percentage of revenue, salaries and benefits increased to 14.4% in 2024 from 12.7% in 2023.

Previous wording

The salaries and benefits increase of $7 million was primarily due to FAFM, which was acquired in December 2023, a $5 million increase in incentive compensation expense and a $2 million increase in payroll tax expense. These increases were partially offset by decreases in driver related expenses of $5 million related to lower driver headcount, lower office employee compensation of $4 million due to lower headcount, excluding FAFM, as well as a decrease in restricted stock expense of $1 million.

Current wording

Decreases in driver related expenses of $11 million related to lower driver headcount, lower office compensation expense of $7 million and lower restricted stock expense of $1 million were more than offset by increases primarily due to the acquisition of FAFM, as well as increases in incentive compensation expense of $5 million and payroll tax expense of $2 million.

Previous wording

Insurance and claims expense remained consistent at $13 million in both 2024 and 2023. These expenses, as a percentage of revenue, increased to 1.3% in 2024 from 1.1% in 2023.

Current wording

Insurance and claims expense increased to $25 million in 2024 from $24 million in 2023. This increase was primarily due to increased claim costs. These expenses, as a percentage of revenue, increased to 1.3% in 2024 from 1.1% in 2023.

Previous wording

Our financing and liquidity strategy is to fund operating cash payments and 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 March 31, 2024, we had $195 million of cash 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 our Credit Facility and other potential 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.

Current wording

Our financing and liquidity strategy is to fund operating cash payments through cash received from the provision of services, cash on hand, and to a lesser extent, from cash received from the sale of equipment. As of June 30, 2024, we had $220 million of cash and $21.0 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 and dividend payments have been funded by cash from operations or cash on hand. We have not historically used our Credit Facility to fund our operating, investing, or financing cash needs, though it is available to fund future cash requirements as needed. Based on past performance and current expectations, we believe cash on hand and cash received from the provision of services, along with our Credit Facility and other potential 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.

Previous wording

Cash provided by operating activities for the three months ended March 31, 2024 was $81 million, which resulted primarily from net income of $27 million, non-cash charges of $51 million plus changes in operating assets and liabilities of $3 million.

Current wording

Cash provided by operating activities for the six months ended June 30, 2024 was approximately $150 million, which resulted primarily from net income of $56 million plus non-cash charges of $98 million, partially offset by the changes in operating assets and liabilities of $4 million.

Previous wording

Cash provided by operating activities totaled $81 million in 2024 compared to $89 million in 2023. The $8 million decrease in cash flow was primarily due to decreases in net income of $35 million and non-cash charges of $1 million, partially offset by an increase in the change of assets and liabilities of $28 million.

Current wording

Cash provided by operating activities totaled $150 million in 2024 compared to $221 million in 2023. The $71 million decrease in cash flow was primarily due to a decrease in net income of $52 million, a decrease in non-cash charges of $12 million and a negative change in operating assets and liabilities of $7 million, primarily due to the change in accounts receivable.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was $14 million which resulted from capital expenditures of $18 million, partially offset by proceeds from the sale of equipment of $4 million. Capital expenditures of $18 million related primarily to tractors of $11 million, technology investments of $4 million, containers of $2 million, warehouse equipment of $1 million and the remainder for leasehold improvements.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024 was $22 million which resulted from capital expenditures of $31 million, partially offset by proceeds from the sale of equipment of $6 million and $4 million related to the FAFM acquisition. Capital expenditures of $31 million related primarily to tractors of $14 million, technology investments of $9 million and warehouse equipment of $6 million.

Previous wording

Capital expenditures decreased by approximately $9 million in 2024 as compared to 2023. The 2024 decrease was due primarily to less spend on tractors of $4 million, containers of $3 million and warehouse equipment of $2 million.

Current wording

Capital expenditures decreased by approximately $34 million in 2024 as compared to 2023. The 2024 decrease was due to lower spend on tractors of $21 million, decreases in container purchases of $11 million, leasehold improvements of $2 million and warehouse equipment of $1 million. These decreases were partially offset by increases in the technology investments of $1 million.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2024 was $58 million which includes repayments of long-term debt of $27 million, purchase of treasury stock of $26 million, cash for stock tendered for payments of withholding taxes of $8 million, dividends paid of $8 million and finance lease payments of $1 million, partially offset by the proceeds from the issuance of debt of $12 million. Debt incurred in 2024 was used to fund the purchase of transportation equipment.

Current wording

Net cash used in financing activities for the six months ended June 30, 2024 was $96 million which includes repayments of long-term debt of $53 million, purchases of treasury stock of $33 million, dividends paid of $15 million, cash for stock tendered for payments of withholding taxes of $9 million and finance lease payments of $1 million, partially offset by proceeds from the issuance of debt of $16 million. Debt incurred in 2024 was used to fund the purchase of transportation equipment.

Previous wording

The $41 million increase in cash used in financing activities for 2024 versus 2023 was primarily due to an increase in the purchase of treasury stock of $26 million, less proceeds from the issuance of debt of $9 million and an increase in dividends paid of $8 million, partially offset by a decrease in repayments of long-term debt of $2 million.

Current wording

The $20 million decrease in cash used in financing activities for 2024 versus 2023 was primarily due to the decrease in the purchase of treasury stock of $67 million and less repayments of long-term debt of $3 million, partially offset by less proceeds from the issuance of debt of $35 million and an increase in dividends paid of $15 million.

Previous wording

We have standby letters of credit that expire in 2024. As of both March 31, 2024 and December 31, 2023, our letters of credit were $1 million.

Current wording

We have standby letters of credit that expire in 2024 and 2025. As of both June 30, 2024 and December 31, 2023, our letters of credit were $1 million.

Previous wording

At March 31, 2024, and December 31, 2023, we had no borrowings under our Credit Agreement and our unused and available borrowings were $349 million. We were in compliance with the financial covenants in our debt agreement as of March 31, 2024 and December 31, 2023.

Current wording

As of both June 30, 2024, and December 31, 2023, we had no borrowings under the Credit Agreement and our unused and available borrowings were $349 million. We were in compliance with our debt covenants as of June 30, 2024 and December 31, 2023.

Previous wording

Refer to the company's 2023 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of March 31, 2024, there were no material changes to our critical accounting policies and estimates.

Current wording

Refer to the company's 2023 10-K for a complete discussion regarding our critical accounting policies and estimates. As of June 30, 2024, there were no material changes to our critical accounting policies and estimates.