Hub Group Inc

NOTE 1. Description of Business and Summary of Significant Accounting Policies

Business: Hub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading supply chain solutions provider that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some of which are provided using assets we own and operate, and some of which are provided by third parties with whom we contract. Our transportation services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Our logistics services include full outsource logistics solutions, transportation management services, consolidation and fulfillment services, final mile delivery, parcel and international services.

On October 23, 2024, we entered into an investment agreement with Corporación Interamericana de Logística, S.A. de C.V. (“CIL”) and certain associated entities (commonly known as “EASO”) whereby we acquired a 51% controlling interest. On December 20, 2023, we acquired Forward Air Final Mile (“FAFM”). On August 22, 2022, we acquired TAGG Logistics, LLC (“TAGG”). Refer to Note 4“Business Combinations” for additional information.

Principles of Consolidation: The consolidated financial statements include our accounts and all entities in which we have a controlling financial interest, including variable interest entities (“VIEs”) for which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation, and net income are reduced by the portion of net income attributable to non-controlling interests.

Variable Interest Entities: We consolidate all variable interest entities where we are the primary beneficiary. We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity's economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. In addition, we consider the nature of relationships and activities of the parties involved and, where necessary, determine which party within a related-party group is most closely associated with the VIE and would therefore be considered the primary beneficiary. We determine primary beneficiary status of a VIE at the time of investment and perform ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of its involvement with the entity result in a change to the VIE designation or a change to its consolidation conclusion. Our economic interest in CIL includes an allocation of income or loss proportional to our relative ownership interest.

Non-controlling Interests: Non-controlling interests (“NCI”) reflect the portion of income or loss and the corresponding equity attributable to third-party equity holders and employees in certain consolidated entities that are not 100% owned by the Company. Non-controlling interests are presented as separate components of stockholders’ equity on our Consolidated Balance Sheets to clearly distinguish between our interests and the economic interests of third parties and employees in those entities. Net income attributable to Hub Group, Inc., as reported in the Consolidated Statements of Income, is presented net of the portion of net income attributable to holders of non-controlling interests.

Cash and Cash Equivalents: We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of December 31, 2024 and 2023, our cash and temporary investments were with high quality financial institutions in demand deposit accounts (“DDAs”), savings accounts, checking accounts and money market accounts.

Restricted Cash: Restricted cash includes cash held in both deposit accounts and escrow accounts that are not subject to remeasurement on a recurring basis, which are restricted under certain investment agreements as to future use.

Foreign Currency: Assets and liabilities of non-U.S. dollar functional currency operations are translated into U.S. dollars at end-of-period exchange rates while revenues, expenses and cash flows are translated at average monthly exchange rates over the period. Equity is translated primarily at historical exchange rates and the resulting cumulative translation adjustments are included as a component of Accumulated other comprehensive loss in the Consolidated Balance Sheets.

Accounts Receivable and Allowance for Uncollectible Accounts: The allowance for credit losses is a valuation account that is deducted from the trade receivables’ amortized cost basis to present the net amount expected to be collected on the receivables. Trade receivables are charged off against the allowance when we believe the uncollectibility of a receivable balance is confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management continuously reviews and assesses the environment and its potential impact on the credit worthiness and collectability of our accounts receivable with customers most affected by tighter financial conditions. Our allowance for credit losses is presented in the allowance for uncollectible trade accounts and is immaterial as of December 31, 2024 and 2023. The allowance for uncollectible trade accounts also includes estimated adjustments to revenue for items such as billing disputes. Our reserve for uncollectible accounts was approximately $26.7 million and $34.7 million as of December 31, 2024 and 2023, respectively. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously charged off are recorded when received.

Property and Equipment: Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method at rates adequate to depreciate the cost of the applicable assets over their expected useful lives: building and improvements, up to 40 years; leasehold improvements, the shorter of useful life or lease term; computer equipment and software, up to 10 years; furniture and equipment, up to 10 years; and transportation equipment up to 20 years. Direct costs related to internally developed software projects are capitalized and amortized over their expected useful life on a straight-line basis not to exceed 10 years. Interest is capitalized on qualifying assets under development for internal use. Maintenance and repairs are charged to operations as incurred and major improvements are capitalized. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts with any gain or loss realized upon sale or disposal charged or credited to operations.

We routinely evaluate the useful life attributed to our assets. During the quarter ended September 30, 2024, we determined that the useful lives of certain transportation equipment should be increased to 20 years based on historical experience related to the use of this equipment and our expectation of its future usability. In addition, we changed the estimated salvage values of the transportation equipment to reflect current expectations at the end of the revised useful life. We accounted for these items as changes in estimate that were applied prospectively, effective as of July 1, 2024. These changes in estimate resulted in a decrease in depreciation expense of $10.0 million, an increase to net income of $7.9 million and an increase in both basic and diluted earnings per share of $0.13, during the six months ended December 31, 2024.

We review long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event that the undiscounted future cash flows resulting from the use of the asset is less than the carrying amount, an impairment loss equal to the excess of the assets carrying amount over its fair value, less cost to dispose, is recorded.

Capitalized Internal Use Software and Cloud Computing Costs: We capitalize internal and external costs, which include costs related to the development of our cloud computing or hosting arrangements, incurred to develop internal use software per ASC Subtopic 350-40. Internal use software has both of the following characteristics: the software is acquired, internally developed, or modified solely to meet our needs and during the development or modification, no substantive plan exists or is being developed to market the software externally. Only costs incurred during the application development stage and costs to develop or obtain software that allows for access to or conversion of old data by new systems are capitalized. Capitalization of costs begins when the preliminary project stage is complete, management has committed to funding the project and it is probable the project will be completed, and the software will be used to perform its intended function. The measurement of the costs to capitalize include fees paid to third parties, costs incurred to obtain software from third parties, travel expenses incurred by employees in their duties associated with developing software, payroll related costs for employees who spend time directly on the project and interest costs incurred while developing internal-use software or implementing a hosting arrangement. Capitalization ceases no later than when the project is substantially complete and ready for its intended use, after all substantial testing is complete.

Goodwill and Other Intangibles: Goodwill represents the excess of purchase price over the fair market value of net assets acquired in connection with our business combinations. Goodwill and intangible assets that have indefinite useful lives are not amortized but are subject to annual impairment tests.

We test goodwill for impairment annually in the fourth quarter or when events or changes in circumstances indicate the carrying value of this asset might exceed the current fair value. We test goodwill for impairment at the reporting unit level. We havetwo reportable segments andtwo reporting units: Intermodal and Transportation Solutions (“ITS”) and Logistics which are based primarily on the services each segment provides. We assess qualitative factors such as current company performance and overall economic factors to determine if it is more-likely-than-not that the fair value of our reporting units is less than their carrying value and whether it is necessary to perform the quantitative goodwill impairment test. In the quantitative goodwill test, a company compares the carrying value of its reporting units to their fair value. If the fair value of a reporting unit is less than the carrying amount, then a goodwill impairment charge will be recognized in the amount by which carrying amount exceeds fair value, limited to the total amount of goodwill allocated to that reporting unit. We performed our annual assessment in the fourth quarter of 2024 and 2023 as required and determined it was not more-likely-than-not that the fair value of our reporting units was less than its carrying value.

We evaluate the potential impairment of finite-lived acquired intangible assets when impairment indicators exist. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset.

Claims Accruals: We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo damage. Certain insurance arrangements include high self-insurance retention limits or deductibles applicable to each claim. We have umbrella policies to limit our exposure to large claim costs.

Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by third-party claims administrators, as well as legal and regulatory factors. Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated cost of each claim. The ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use an actuarial method to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-development factors based on our historical claims experience. In doing so, the recorded liability factors in future growth of claims and an allowance for incurred-but-not-reported claims. We do not discount our estimated losses. In addition, we record receivables for amounts expected to be reimbursed for payments made in excess of self-insurance levels on covered claims related to auto liability and workers’ compensation. At December 31, 2024 and 2023, we had an accrual of approximately$38.5 million and$39.1 million, respectively for estimated claims. We had no significant receivables recorded for payments in excess of our self-insured levels. Our claims accruals are classified in accrued other and non-current liabilities in the consolidated balance sheets, based on when the claim is estimated to be paid.

Concentration of Credit Risk: Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and temporary investments with high quality financial institutions in DDAs, savings accounts, checking accounts and money market accounts. We primarily serve customers located throughout the United States with no significant concentration in any one region. In each of the years ended December 31, 2024, 2023 and 2022, one customer accounted for more than 10% of our annual revenue in both segments. We review a customer’s credit history before extending credit. In addition, we routinely assess the financial strength of our customers and, as a consequence, believe that our trade accounts receivable risk is limited.

The following table includes the one customer that represented 10% or more of our annual revenue by segment during the last three fiscal years:

Revenue Recognition: In accordance with the Accounting Standards Codification (ASC) topic 606, “Revenue from Contracts with Customers” our significant accounting policy for revenue is as follows:

Revenue is recognized when we transfer services to our customer in an amount that reflects the consideration we expect to receive. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control to the customer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on the extent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services, which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Further, in most cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick-up and delivery and tracing shipments in transit. We have discretion in setting prices to our customers and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support reporting revenue on a gross basis for most of our revenue.

Provision for Income Taxes: Significant judgment is required in determining and assessing the impact of complex tax laws and certain tax-related contingencies on our provision for income taxes. As part of our calculation of the provision for income taxes, we assess whether the benefits of our tax positions are at least more likely than not to be sustained upon audit based on the technical merits of the tax position. For tax positions that are not more likely than not to be sustained upon audit, we accrue the largest amount of the benefit that is not more likely than not to be sustained in our financial statements. Such accruals require us to make estimates and judgments, whereby actual results could vary materially from these estimates. Further, years may elapse before a particular matter for which we have established an accrual is audited and resolved or its statute of limitations expires. We recognize interest expense and penalties related to income tax liabilities in our provision for income taxes.

Deferred income taxes are recognized for the future tax effects of temporary differences between financial statement and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We believe that it is more likely than not that our deferred tax assets will be realized based on future taxable income projections, with one exception. We have established a valuation allowance of$2.9 million related to certain federal and state tax credit carryforwards. In the event the probability of realizing the remaining deferred tax assets does not meet the more likely than not threshold in the future, a valuation allowance would be established for the deferred tax assets deemed unrecoverable.

Earnings Per Common Share: Basic earnings per common share are based on the average quarterly weighted average number of Class A and Class B shares of common stock outstanding. Diluted earnings per common share are adjusted for restricted stock using the treasury stock method.

Stock Based Compensation: Share-based compensation includes the restricted stock awards expected to vest based on the grant date fair value. Compensation expense is amortized straight-line over the vesting period and is included in salaries and benefits.

New Pronouncements: In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense disaggregation disclosures (Topic 220) - Disaggregation of Income Statement Expenses. ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement in response to requests from investors for more information about an entity’s expenses. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. For public business entities, ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently assessing the impact of adopting this guidance on our disclosures; it will not have an impact on our results of operations, cash flows, or financial condition.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We are assessing the impact of this guidance on our disclosures; it will not have an impact on our results of operations, cash flows, or financial condition.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”). We adopted this new accounting standard effective for our fiscal December 31, 2024 year-end disclosures. The adoption of this standard impacted our disclosures only and did not have an impact on our results of operations, cash flows or financial condition. See Note 5 of the consolidated financial statements for details related to “Segment Reporting.”

Cash Dividends:

The Board declared quarterly cash dividends throughout 2024 as follows:

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On February 22, 2024, the Board declared a quarterly cash dividend of $0.125 per share on our Class A and Class B Common Stock. The dividend was paid on March 27, 2024 to stockholders of record as of March 8, 2024.

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On May 23, 2024, the Board declared a quarterly cash dividend of $0.125 per share on our Class A and Class B Common Stock. The dividend was paid on June 26, 2024 to stockholders of record as of June 7, 2024.

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On August 27, 2024, the Board declared a quarterly cash dividend of $0.125 per share on our Class A and Class B Common Stock. The dividend was paid on September 25, 2024 to stockholders of record as of September 6, 2024.

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On November 25, 2024, the Board declared a quarterly cash dividend of $0.125 per share on our Class A and Class B Common Stock. The dividend was paid on December 20, 2024 to stockholders of record as of December 6, 2024.

The declarations and payments of the quarterly cash dividends were subject to the approval of the Board at its sole discretion and in compliance with applicable laws and regulations. Accordingly, there can be no assurance that the Board will declare or pay cash dividends on the shares of Common Stock in the future. Our certificate of incorporation requires that any cash dividends must be paid equally on each outstanding share of Class A Common Stock and Class B Common Stock. Our credit facility prohibits us from paying dividends on the Common Stock if there has been, or immediately following the payment of a dividend there would be, a default or an event of default under the credit facility.

Stock Split: On January 4, 2024, we announced a two-for-one stock split of our Class A and Class B Common Stock. The stock split was implemented in the form of a distribution of one additional share of Class A Common Stock for each share outstanding. The record date for the stock split was as of the close of business on January 16, 2024. Our distribution date of the additional shares was January 26, 2024. As a result of the stock split, the number of authorized shares remained unchanged. Additionally, the par value per share of the common stock remains unchanged. All other share amounts in our consolidated balance sheets, consolidated statements of income and comprehensive income, consolidated statements of stockholders' equity and related footnote disclosures have been adjusted and presented as though the stock split had occurred on January 1, 2021.

Use of Estimates: The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for uncollectible trade accounts, exposure for self-insured claims under our insurance policies, valuation of acquired goodwill and intangible assets and useful lives of assets. Actual results could differ from these estimates.

Reclassifications: Due to presentation changes made in Note 7 to the consolidated financial statements under “Income Taxes,” certain prior year amounts have been reclassified to conform with the current year presentation.

NOTE 2. Capital Structure

We have authorized common stock comprised of Class A Common Stock and Class B Common Stock. The rights of holders of Class A Common Stock and Class B Common Stock are identical, except each share of Class B Common Stock entitles its holder to approximately 84 votes, while each share of Class A Common Stock entitles its holder toone vote. We have authorized 2,000,000 shares of preferred stock.

NOTE 3. Earnings Per Share

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

NOTE 4. Business Combinations

EASO Transaction

On October 23, 2024, we entered into an investment agreement with Corporación Interamericana de Logística, S.A. de C.V. and certain associated entities (commonly known as “EASO”), a family-led, intermodal and trucking logistics provider headquartered in Mexico City to acquire a controlling interest in EASO. EASO specializes in intermodal, dedicated trucking, truckload and freight brokerage services. Through a network of terminals across Mexico, EASO serves the entire Mexican domestic market and main logistics hubs in the U.S. using its intermodal cross-border network.

The estimated fair value of total consideration transferred was approximately $55 million for a 51% equity stake in EASO. The financial results of EASO, since the date of acquisition, are included in our ITS segment.

The EASO investment transaction expanded our intermodal and transportation solutions business. With a substantial increase in cross-border trade activity from nearshoring, this transaction improves our ability to provide a cross-border service offering and provides increased intermodal conversion opportunities.

The initial accounting for the EASO transaction is incomplete as we, with the support of our valuation specialist, are in the process of finalizing the fair market value calculations of the acquired net assets as well as non-controlling interests. In addition, we are in the preparation and review process of the applicable future cash flows used in determining the purchase accounting. Finally, certain post-closing activities outlined in the investment agreement remain incomplete. As a result, the amounts recorded in the consolidated financial statements related to the EASO transaction are preliminary and the measurement period remains open.

The following table summarizes the preliminary purchase price allocation to the assets acquired and liabilities assumed as of the date of the investment agreement (in thousands):

The following table summarizes the preliminary estimated acquisition date fair value of consideration transferred and purchase price allocation.

The EASO transaction was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” In connection with the transaction, we performed a consolidation analysis concluding that we control all EASO entities through either a majority voting interest or as the primary beneficiary of a variable interest entity. As a result,100% of assets acquired, liabilities assumed and non-controlling interests were recorded in the accompanying Consolidated Balance Sheet at their estimated fair values as of October 23, 2024, with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the EASO transaction was primarily attributable to potential expansion and future development of the business. This goodwill is not expected to be deductible for tax purposes.

Total consideration transferred includes $30.6 million of deferred cash consideration, all or a portion of which may be paid at least two years after the closing date of the transaction. As a result of the restrictions on this deferred consideration in the investment agreement, we have classified the associated cash as Restricted Cash in the accompanying Consolidated Balance Sheet. As of December 31, 2024, the balances of Deferred Consideration and Restricted Cash were$30.6 million and$28.7 million, respectively, on the Consolidated Balance Sheets.

Total consideration transferred includes $3.7 million of contingent consideration related to certain operating tax balances existing prior to the transaction for which we have agreed to reimburse the full amount of cash collected within two years of the closing date of the transaction. The estimated fair value of such contingent consideration is based on estimated collectability of such operating tax balances within the agreed timeframe.

Our investment in one of the EASO entities, Corporación Interamericana de Logística, S.A. de C.V. (“CIL”), qualifies as a Variable Interest Entity (“VIE”). Based on the rights provided in the investment and shareholder agreements, as well as the design of the VIE, our majority exposure to the variability associated with economic performance of the VIE, and the relationship and significance of activities of the VIE to us, we determined that we are most closely associated with the VIE and are therefore considered the primary beneficiary.

During a period from 2030 to 2032, Hub will have the right, but not the obligation, to purchase an amount of issued and outstanding shares of EASO such that, upon exercising this call right, we would own 80% of all of the issued and outstanding shares of EASO at a purchase price based on earnings multiples as defined in the shareholders agreement. We evaluated this call right and concluded that it does not meet the definition of a derivative, resulting in the non-controlling interest and embedded call right being classified as permanent equity.

We incurred approximately $2.8 million of transaction costs associated with the transaction in 2024 that were expensed as incurred and are reflected in general and administrative expense in the accompanying Consolidated Statements of Income.

The components of “Other intangibles” listed in the above table as of the transaction date are preliminarily estimated based on prior acquisitions as follows (in thousands):

The above intangible assets are amortized using the straight-line method. Amortization expense related to this transaction for the year ended December 31, 2024 was $0.6 million. The intangible assets have a weighted average useful life of approximately 10.54 years as of December 31,2024.

Amortization expense related to EASO investment agreement for the next five years is estimated as follows (in thousands):

From the date of the transaction through December 31, 2024, EASO's revenue was$20.3 million and operating income was $0.5 million.

Forward Air Final Mile Acquisition

On December 20, 2023, we acquired 100% of the equity interest of Forward Air Final Mile (“FAFM”). FAFM provides residential last mile delivery services and installation of big and bulky goods, with a focus on appliances, throughout the United States. 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. The financial results of FAFM, since the date of acquisition, are included in our Logistics segment.

The FAFM acquisition expanded ourfinal mile services to include the delivery and installation of appliances. FAFM provides residential last mile delivery services through a non-asset business model, working with a network of over 350 carriers throughout the country.

Based on refined inputs incorporated into the fair market value calculations during 2024, we have estimated that the fair value of intangible assets totals $95.1 million as of December 31, 2024. This represents a $39.4 million decrease relative to the initial estimated fair value of the intangible assets and results in a corresponding increase to goodwill.

The following table summarizes the allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition (in thousands):

The FAFM acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their fair values as of December 20, 2023, with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the FAFM acquisition was primarily attributable to potential expansion and future development of the acquired business.

Tax history and attributes are not inherited in an equity purchase of this kind, however, the goodwill and other intangibles recognized in this purchase will be fully tax deductible over a period of 15 years.

We incurred approximately $5.1 million of transaction costs associated with this transaction prior to the closing date that are reflected in general and administrative expense and insurance and claims expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2023.

The components of “Other intangibles” listed in the above table as of the acquisition date are based on fair market valuations with amounts as follows (in thousands):

The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the year ended December 31, 2024 was $8.6 million. The intangible assets have a remaining weighted average useful life of approximately 11.84 years as of December 31,2024.

Amortization expense related to FAFM for the next five years is expected to be as follows (in thousands):

FAFM's actual results are included in our consolidated financial statements since the acquisition date of December 20, 2023. The following unaudited pro forma consolidated results of operations present the effects of FAFM as though it had been acquired as of January 1, 2023 (in thousands, except for per share amounts):

The unaudited pro forma consolidated results for the periods above were prepared using the acquisition method of accounting and are based on the historical financial information of Hub and FAFM. The historical financial information has been adjusted to give effect to the pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the FAFM acquisition as of January 1, 2023.

NOTE 5. Segment Reporting

Our CEO has been identified as our Chief Operating Decision Maker (“CODM”). We havetwo reportable segments: Intermodal and Transportation Solutions (“ITS”) and Logistics which are based primarily on the services each segment provides. Our ITS segment includes our asset-light business lines: intermodal and dedicated trucking. Our Logistics segment includes our non-asset business lines: managed transportation, truck brokerage, final mile and consolidated fulfillment services. Our CODM uses operating income by segment to make decisions over the allocation of capital and resources and assess the performance of our segments.

Intermodal and Transportation Solutions. Our ITS segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment includes our trucking operations which provides our customers with local pickup and delivery (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 50,000 containers. As of December 31, 2024, we operated trucking terminals at 32 locations throughout the United States and Mexico, with locations in many large metropolitan areas. We also contract for services with independent owner-operators who supply their own equipment and operate under our regulatory authority. 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. 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 December 31, 2024, our trucking transportation operation consisted of approximately 2,300 tractors,3,200 employee drivers and 4,700 trailers. We also contract for services with approximately 500 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 final mile delivery offering provides residential final mile delivery and installation of appliances and big and bulky goods. Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States. Our business operates or has access to approximately 7 million square feet of warehousing and cross-dock space across North America, to which our customers ship their goods to be stored and distributed to destinations including residences, retail stores and other commercial locations. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements. Logistics also includes our brokerage business which provides third-party truckload, less-than-truckload (“LTL”), flatbed and temperature-controlled needs.

The following tables summarize our financial data by segment (in thousands):

Separate balance sheets are not presented by segment to our CODM. Our CODM uses consolidated asset information to make capital decisions.

NOTE 6. Goodwill and Other Intangible Assets

Our goodwill is allocated betweentwo reporting units, ITS and Logistics. In accordance with the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification, we completed the required annual impairment assessment, concluding it was not more-likely-than-not that the fair value of either of our reporting units was less than the respective carrying value. There wereno accumulated impairment losses of goodwill at the beginning of the period.

The following table presents the carrying amount of Goodwill by segment (in thousands):

The components of the "Other intangible assets” are as follows (in thousands):

The above intangible assets are amortized using the straight-line method. Amortization expense was$33.5 million and$27.2 million for the years ended December 31, 2024 and 2023, respectively. The remaining weighted average life of all definite lived intangible assets was 9.69 years and 11.32 years for the years ended December 31, 2024 and 2023, respectively.

Amortization expense for the next five years is expected to be as follows (in thousands):

NOTE 7. Income Taxes

The following is a reconciliation of our effective tax rate to the federal statutory tax rate:

The following is a summary of our provision for income taxes (in thousands):

The following is a summary of our deferred tax assets and liabilities (in thousands):

We are subject to income taxation in the United States, numerous state jurisdictions, Mexico, Canada, and India. Because income tax return formats vary among the states, we file both unitary and separate company state income tax returns. We do not permanently reinvest our foreign earnings, all amounts are accrued and accounted for, though not material.

Our state tax net operating losses total $0.1 million. Some of those state losses have no expiration date while others will expire between December 31, 2028, and December 31, 2044. Management believes it is more likely than not that the loss carryforward deferred tax assets will be fully realized.

Our federal incentive tax credit carryforward of $0.1 million expires between December 31, 2025 and December 31, 2028. Our state incentive tax credit carryforwards of $5.5 million expire between December 31, 2025 and December 31, 2027. Management believes it is more likely than not that approximately $1.9 million of the incentive carryforward deferred tax assets will be realized and a valuation allowance of $3.7 million has been established for the remainder which are not expected to be realized.

As of December 31, 2024 and December 31, 2023, the amount of unrecognized tax benefits was $9.1 million and $12.9 million, respectively. If recognized, these benefits would decrease our income tax provision by $7.2 million and $10.2 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

We recognize interest and penalties related to income tax liabilities in our provision for income taxes. In 2024, we included $0.1 million in our provision for income taxes.

The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022, and the CHIPS and Science Act of 2022 (CHIPS Act) was signed into law on August 9, 2022. These laws implemented new tax provisions, primarily a 15% corporate alternative minimum tax and a nondeductible 1% excise tax on the fair market value of stock repurchased by publicly traded corporations. In 2024, we paid approximately $1.6 million in excise taxes related to stock repurchases. The two acts also provide various tax credits, several of which are transferable or refundable, for the investment in or production of clean-energy effective January 1, 2023.

NOTE 8. Fair Value Measurement

The carrying value of cash and cash equivalents, accounts receivable and accounts payable materially approximated fair value as of December 31, 2024. As of December 31, 2024, the $264.4 million carrying value of our fixed-rate borrowings approximated the fair value. As of December 31, 2023, the fair value of the Company's fixed-rate borrowings was $1.4 million less than the historical carrying value of $350.7 million. The fair value of the fixed-rate borrowings was estimated using an income approach based on current interest rates available to us for borrowings on similar terms and maturities.

We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of December 31, 2024 and 2023, our cash and temporary investments were with high quality financial institutions in demand deposit accounts, savings accounts, checking accounts and money market accounts.

As of December 31, 2024, Restricted Cash of$28.7 million includes cash held in both deposit accounts and escrow accounts that are not subject to remeasurement on a recurring basis.

Restricted investments included $21.6 million and $20.8 million as of December 31, 2024 and 2023, respectively, of mutual funds and other security investments which are reported at fair value. These investments relate to the non-qualified deferred compensation plan that is described in Note 14 and insurance deposits.

Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cash equivalents, accounts receivable, accounts payable and mutual funds and related liabilities are defined as “Level 1,” while long-term debt is defined as “Level 2” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification.

NOTE 9. Property and Equipment

Property and equipment consist of the following (in thousands):

Depreciation expense related to property and equipment was $106.7 million, $114.4 million and $103.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

NOTE 10. Long-Term Debt and Financing Arrangements

In February 2022, we entered into afive-year, $350 million unsecured credit agreement (the "Credit Agreement"). Borrowings under the Credit Agreement generally bear interest at a variable rate equal to (i) the secured overnight financing rate (published by the Federal Reserve Bank of New York, “SOFR”), plus a specified margin based on the term of such borrowing, plus a specified margin based upon Hub’s total net leverage ratio (as defined in the Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% andone-month SOFR) plus a specified margin based upon the Total Net Leverage Ratio. The specified margin for SOFR loans varies from 100.0 to 175.0 basis points per annum. The specified margin for base rate loans varies from 0.0 to 75.0 basis points per annum. Hub must also pay (1) a commitment fee ranging from 10.0 to 25.0 basis points per annum (based upon the Total Net Leverage Ratio) on the aggregate unused commitments and (2) a letter of credit fee ranging from 100.0 to 175.0 basis points per annum (based upon the Total Net Leverage Ratio) on the undrawn amount of letters of credit.

We have standby letters of credit that expire in 2025. Our letters of credit were $1 million as of both December 31, 2024 and December 31, 2023, respectively.

As of December 31, 2024 and December 31, 2023, we hadno borrowings under our respective credit agreements. Our unused and available borrowings were $349 million as of both December 31, 2024 and December 31, 2023, respectively. We were in compliance with the financial covenants in our credit agreements as of December 31, 2024 and December 31, 2023.

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.

Our outstanding Notes are as follows (in thousands):

(1) Includes an immaterial amount of notes held at EASO with interest rates up to 13.95%.

Aggregate principal payments, in thousands, due subsequent to December 31,2024, are as follows:

NOTE 11. Leases

In accordance with ASC 842, “Leases,” (“ASC 842”) which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for all leases, we made an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less.

As of December 31, 2024, we recorded $234.7 million of ROU assets and $244.1 million of lease liabilities on our consolidated balance sheet. As of December 31, 2023, we recorded $213.3 million of ROU assets and $224.8 million of lease liabilities on our consolidated balance sheet. The lease liabilities recognized are measured based upon the present value of minimum future payments. The ROU assets are equal to lease liabilities upon initial recording, adjusted for prepaid and accrued rent balances which are recorded in the Consolidated Balance Sheets.

We currently do not have any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate). Some leases have options to extend or terminate the agreement, which management assesses in determining the estimated lease term. If any of the options to extend a lease are exercised, this change will be reflected as a remeasurement of the ROU asset and lease liability accordingly. As of December 31, 2024, the ROU asset and lease liabilities do not reflect any options to extend or terminate a lease as management is not reasonably certain it will exercise any of these options. Also, current leases do not contain any restrictions or covenants imposed by the leases or residual value guarantees.

As of December 31, 2024, we signed new property lease contracts which had not commenced. Based on the present value of the lease payments, the estimated ROU assets and lease liabilities related to these contracts will total approximately$2.8 million.

Discount rates are not specified on the individual lease contracts at the commencement date. To determine the present value of the lease payments, we used our incremental borrowing rate which was determined based on our credit standing and factoring in the current 12-month SOFR rate published at the time of the lease commencement. This incremental borrowing rate represents the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term and amounts equal to the lease payments in a similar economic environment.

The following table summarizes the lease costs (in thousands), which are included in transportation costs and general and administrative costs in the accompanying Consolidated Statement of Income:

The following table represents the maturity of operating and finance lease liabilities (in thousands):

The following table presents supplemental cash flow and noncash information related to leases:

The weighted average remaining lease term and discount rates as of December 31, are as follows (in thousands):

NOTE 12. Internal-Use Software

We capitalize internal and external costs, which include costs related to the development of our cloud computing or hosting arrangements, incurred to develop internal use software per ASC Subtopic 350-40. Refer to Note 1 "Description of Business and Summary of Significant Accounting Policies" for information regarding accounting policy.

We had total capitalized internal use software costs, which include costs related to the development of our cloud computing or hosting arrangements, net of accumulated amortization, of$56.0 million and$56.4 million as of December 31, 2024 and 2023, respectively. The 2024 balance consists of capitalized implementation costs of$13.2 million, net of accumulated amortization, related to our cloud hosting arrangements, which are classified in other assets in our consolidated balance sheet and capitalized internal-use software costs of$42.7 million, net of accumulated amortization, which are classified in property and equipment in our consolidated balance sheet. The 2023 balance consists of capitalized implementation costs of$12.0 million, net of accumulated amortization, related our cloud hosting arrangements, which are classified in other assets in our consolidated balance sheet and capitalized internal-use software costs of$44.4 million, net of accumulated amortization, which are classified in property and equipment in our consolidated balance sheet.

We capitalized total implementation and internal-use software costs of$20.9 million and$16.7 million in 2024 and 2023, respectively. Implementation and internal-use software costs are amortized, once ready for intended use, over its expected useful life or the term of the associated hosting arrangements of generally up to 10 years.

NOTE 13. Stock-Based Compensation Plans

The 2022 Long-Term Incentive Plan (the “2022 Incentive Plan”) was approved by our Board of Directors and subsequently approved by our stockholders at the 2022 annual meeting. The 2022 Incentive Plan authorizes a broad range of awards including stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares or units, other stock-based awards, and cash incentive awards to all employees (including our executive officers), directors, consultants, or independent contractors of us or a related company. The 2022 Incentive Plan is effective as of May 24, 2022.

As of December 31, 2024,2,169,625 shares were available for future grant under the 2022 Incentive Plan.

We have awarded time-based restricted stock to our employees and non-employee directors (“Outside Directors”). This restricted stock generally vests ratably (once per year) over athree tofive-year period for recipients other than Outside Directors. Outside Directors’ restricted stock vests over a one-year period. In 2024, 2023, and 2022, we also granted performance-based restricted stock to our executive officers. The performance-based restricted stock vests upon the third anniversary of its issuance if certain financial targets are achieved.

Share-based compensation expense for 2024, 2023 and 2022 was $19.0 million, $21.2 million and $20.6 million or $14.9 million, $17.0 million and $15.7 million, net of taxes, respectively. Included in the 2024, 2023, and 2022 share-based compensation expense was $5.2 million, $6.3 million and $5.6 million of performance-based share expenses or $4.1 million, $4.8 million and $4.2 million, net of taxes, respectively.

The fair value of non-vested restricted stock is equal to the market price of our stock at the date of grant.

The following table summarizes the non-vested restricted stock activity for the year ended December 31,2024:

The following table summarizes the restricted stock granted during the respective years:

The performance-based restricted stock granted in 2022 earned a 200% award therefore an additional 74,202 shares were issued to settle the award on the vesting date of January 2, 2025. The 2024 grant of performance-based restricted stock resulted in the issuance of 105,048 shares. The performance-based restricted stock grants were 106,874 in 2023 and 103,588 in 2022. The weighted average grant date fair value of these shares was $45.62 in 2024, $39.75 in 2023, and $42.12 in 2022.

The total fair value of restricted shares vested during the years ended December 31, 2024, 2023, and 2022 was $27.8 million, $26.1 million and $22.7 million, respectively.

As of December 31, 2024, 2023, and 2022, there was $33.7 million, $34.0 million and $41.3 million of unrecognized compensation cost related to non-vested time-based compensation, respectively, that is expected to be recognized over a weighted average period for 2024, 2023, and 2022 of 2.66 years,2.75 years and 2.67 years, respectively.

Additionally, as of December 31, 2024, 2023, and 2022 there was $6.2 million, $7.2 million and $7.6 million of unrecognized compensation cost, respectively, related to the non-vested performance-based restricted stock compensation that is expected to be recognized over a weighted average period of 1.5 years for 2024, 2023, and 2022.

During January 2025, we granted 406,585 shares of restricted stock, which includes 111,787 performance-based shares and 258,574 time-based shares, to certain employees and 36,224 shares of restricted stock to our Outside Directors with a weighted average grant date fair value of $44.17. These time-based grants vest ratably (once per year) over afive-year period for employees and aone-year period for Outside Directors. Performance-based grants vest after three years.

NOTE 14. Employee Benefit Plans

We have a profit-sharing plan under section 401(k) of the Internal Revenue Code. At our discretion, we partially match qualified contributions made by employees to the plan. We incurred expense related to the employer match for this plan of $7.7 million in 2024, $8.5 million in 2023 and $6.7 million in 2022.

In January 2005, we established the Hub Group, Inc. Non-qualified Deferred Compensation Plan (the “Plan”) to provide added incentive for the retention of certain key employees. Under the Plan, which was amended in 2008, participants can elect to defer certain compensation. Accounts grow on a tax-deferred basis to the participant. Restricted investments included in the Consolidated Balance Sheets represent the fair value of the mutual funds and other security investments related to the Plan as of December 31, 2024 and 2023. Both realized and unrealized gains and losses are included in income and expense and offset the change in the deferred compensation liability. We provide a 50% match on the first 6% of employee compensation deferred under the Plan which vests over three years with a maximum match equivalent to 3% of base salary. We incurred expenses of $0.2 million in 2024 and $0.3 million in both 2023 and 2022 related to the employer match for this plan. The assets related to the Plan as of December 31, 2024 and 2023 totaled $21.4 million and $20.5 million, respectively. The liabilities related to the Plan as of December 31,2024 and 2023 totaled $21.4 million and $20.5 million, respectively.

NOTE 15. Legal Matters

We are 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 our 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 our financial position, operating results or cash flows for any particular period.

NOTE 16. Stock Repurchase Plans

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.

We purchased 1,830,275 shares for$79.0 million during 2024,4,020,598 shares for $153.9 million during 2023 and 2,957,330 shares for $118.1 million in 2022. These amounts include the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock, which do not reduce the repurchase authority under our share repurchase program.

NOTE 17. Related Party Transactions

In August 2022, we entered into a Common Stock Exchange and Repurchase Agreement (the “Agreement”) with entities affiliated with David P. Yeager, then our Chairman of the Board of Directors and Chief Executive Officer (collectively, the “DPY Entities”) and entities affiliated with Mark A. Yeager, the brother of David P. Yeager (collectively, the “MAY Entities”).

Pursuant to the Agreement, the MAY Entities transferred 243,755 shares of Class B Common Stock, $0.01 par value per share, to the DPY Entities in exchange for 685,456 shares of Class A Common Stock, $0.01 par value per share (the “Class A Exchange Shares”; such transfer in exchange for the Class A Exchange Shares is referred to herein as the “Exchange”). Immediately after the consummation of the Exchange, the MAY Entities sold to us (i) all of the Class A Exchange Shares and (ii)87,393 shares of Class B Common Stock (the “Remaining Class B Shares”), representing all of the remaining shares of Class B Common Stock owned by the MAY Entities, for an aggregate purchase price of $34.8 million (the “Repurchase” and, together with the “Exchange,” the “Transaction”). The purchase price for the Repurchase was based on a price per share equal to the closing price of Class A Common Stock on the Nasdaq Global Market on the date of the Agreement. In accordance with our Certificate of Incorporation, the Remaining Class B Shares acquired by us were cancelled and converted into Class A Common Stock upon acquisition and are not available for reissuance.

The Transaction was approved by our Audit Committee of the Board pursuant to our Related Person Transaction Policy approval procedures.