Hub Group, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter report. Hub Group provides multimodal transportation and logistics services, with intermodal its largest business line.
Financial performance
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $4,232.4 million | $3,495.6 million | +21.1% |
| Gross margin | $599.6 million; 14.2% | $425.4 million; 12.2% | +40.9%; +2.0 percentage points |
| Operating income | $238.5 million; 5.6% of revenue | $105.8 million; 3.0% | +125.3% |
| Net income | $171.5 million | $73.6 million | +133.1% |
| Diluted EPS | $5.06 | $2.19 | +$2.87 |
| Cash from operating activities | $252.8 million | $175.0 million | +$77.8 million |
Transportation costs were $3,632.7 million, or 85.8% of revenue, versus $3,070.2 million, or 87.8%, in 2020. Salaries and benefits rose to $247.2 million from $188.8 million; general and administrative expense declined to $76.5 million from $99.6 million, largely reflecting equipment-sale gains and the absence of certain 2020 items. The effective tax rate was 25.7%, compared with 23.5%.
Revenue by business line: Intermodal $2,391.5 million (+17.9%); logistics $887.4 million (+15.7%); truck brokerage $688.9 million (+59.8%); and dedicated $264.6 million (-1.3%). Intermodal generated 57% of revenue. One customer exceeded 10% of annual revenue; the top 10 customers represented approximately 42%.
Liquidity, debt and capital spending
- Cash and cash equivalents were $159.8 million at year-end, up from $124.5 million. Restricted investments were $24.3 million.
- Long-term debt totaled $274.8 million, all reported as secured equipment notes; $97.3 million was current. The company had no borrowings under its credit facility and $308.7 million of available capacity after letters of credit of $41.3 million. It reported compliance with debt covenants.
- Investing activities used $210.1 million, including $133.0 million of capital expenditures and $122.4 million of net acquisition payments, partly offset by $45.2 million of equipment-sale proceeds. Financing activities used $7.4 million.
- Management estimated FY 2022 capital expenditures of $240–$270 million, including $210–$230 million for transportation equipment, to be funded with cash and debt. A new five-year, $350 million unsecured credit agreement was entered into in February 2022.
Material changes and unusual items
- Intermodal revenue per load increased 20.6%, while volume declined 2.2%. Truck brokerage revenue growth reflected higher revenue per load, increased volume and Choptank’s contribution after its October 2021 acquisition.
- Hub acquired Choptank for $127.6 million in cash plus settlement of $0.3 million of receivables. Its preliminary purchase accounting included $54.6 million of goodwill and $60.5 million of intangibles. Choptank contributed $112.2 million of revenue and $0.3 million of operating income from acquisition through year-end. The purchase-price allocation remained preliminary.
- Hub recorded approximately $19.2 million of gains on equipment sales in 2021, compared with a loss of approximately $0.9 million in 2020. Management expected used-equipment gains to continue in 2022, likely below the 2021 level.
- The 2021 financial statements received an unqualified audit opinion. The auditor identified claims accruals as a critical audit matter; the auto and workers’ compensation claims accrual was $30.8 million. Choptank was excluded from management’s and the auditor’s internal-control assessment while integration continues.
Outlook, commentary and risks
Management said demand and pricing were strong in 2021 amid robust consumer goods spending and constrained transportation capacity, including driver shortages and equipment-production challenges. It expected these conditions to continue in 2022, planned to add capacity—including more than 6,500 containers expected to be delivered in 2022—and highlighted margin initiatives such as network optimization, reducing empty miles and improving asset utilization. The filing provides an estimated 2022 effective tax rate of 24%–26%, but no specific revenue or earnings guidance.
Key risks include a shift in consumer spending from goods to services, weaker consumer demand, increased transportation capacity or competitor price aggression, and inability to pass higher transportation, warehouse, labor or fuel costs to customers. Hub also highlights reliance on railroads and a concentrated customer base, driver and labor availability, service disruptions, acquisition integration, cybersecurity and technology risks, self-insured claims, litigation, regulatory changes and the ongoing effects of COVID-19. The company states that ordinary-course litigation is not expected to materially affect its overall financial position or results, while noting that outcomes could be material in a particular period.
Important facts for investors to verify
- Whether higher intermodal yields and overall gross-margin improvement can persist if capacity constraints ease or demand weakens.
- Choptank’s final purchase accounting, integration progress and contribution to earnings beyond the partial-year results disclosed.
- Execution and funding of the $240–$270 million 2022 capital program, and resulting debt and interest costs.
- Customer concentration, rail service and pricing exposure, and the extent to which cost inflation can be passed through.
- Claims-reserve assumptions and developments in driver-classification and employment litigation, including the pending Robles and Adame settlement requiring final court approval.