Hub Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparative periods are the corresponding 2020 periods. Hub Group provides intermodal, logistics, truck brokerage and dedicated transportation services. Amounts below are in U.S. dollars; financial statement values are converted from thousands to millions.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,075.1m | $924.8m | $2,976.0m | $2,542.9m |
| Gross margin | $157.6m (14.7%) | $108.0m (11.7%) | $386.9m (13.0%) | $319.9m (12.6%) |
| Operating income | $59.9m (5.6%) | $33.9m (3.7%) | $120.9m (4.2%) | $74.7m (2.9%) |
| Net income | $43.3m | $24.8m | $87.2m | $51.2m |
| Diluted EPS | $1.28 | $0.74 | $2.58 | $1.53 |
| Operating cash flow | Not separately presented | Not separately presented | $178.1m | $122.7m |
Q3 revenue rose 16.3%; nine-month revenue rose 17.0%. Q3 net income increased to $43.3m from $24.8m, while nine-month net income increased to $87.2m from $51.2m. Q3 operating income grew to $59.9m from $33.9m. The filing attributes stronger results principally to higher revenue and gross margin, partly offset by higher operating costs and taxes.
- Q3 revenue by business line: Intermodal $633.4m, up 16.6%; logistics $224.1m, up 16.6%; truck brokerage $153.3m, up 27.7%; dedicated $64.3m, down 7.1%.
- Nine-month revenue by business line: Intermodal $1,689.6m, up 15.0%; logistics $663.6m, up 16.5%; truck brokerage $420.5m, up 38.0%; dedicated $202.2m, up 1.1%.
- Q3 intermodal and brokerage revenue growth was driven primarily by higher revenue per load, despite lower shipment volumes in both lines. Logistics benefited from retail supplier solutions and NSD, partly offset by lost customers. Dedicated results faced exited business and customer-mix pressure.
- For nine months, truck brokerage gross margin rate declined 110 basis points and dedicated declined 330 basis points; intermodal improved 100 basis points and logistics 90 basis points.
Cash, debt and liquidity
- Cash and cash equivalents were $230.7m at September 30, 2021, versus $124.5m at year-end 2020. Nine-month operating cash flow was $178.1m; investing cash outflow was $53.6m and financing cash outflow was $18.3m.
- Capital expenditures were $84.1m, primarily for containers, tractors and technology. Management estimated another $66m–$76m of capital expenditures for the remainder of 2021.
- Total debt was $258.3m, including $92.6m current and $165.7m long-term, compared with $270.4m at December 31, 2020. Interest expense for the first nine months was $5.6m.
- Unused and available borrowings under the credit agreement were $308.7m; outstanding letters of credit were $41.3m. The company reported covenant compliance and believed cash, operating cash flow and available borrowings would meet needs for at least the next 12 months.
- Current assets were $881.0m and current liabilities $644.3m. Trade receivables were $613.4m, up from $519.0m at year-end.
Outlook, risks and unusual items
- Management expected a full-year 2021 effective tax rate of approximately 24%. No revenue or earnings guidance is provided in the filing.
- Management cited freight-market and customer-liquidity uncertainty and said it was monitoring working capital and communicating with customers. Risks include COVID-19 effects, rail and carrier capacity or cost changes, driver recruitment and retention, competition, fuel prices, customer concentration, cyber risks and weather disruptions. The top 50 customers accounted for approximately 69% of nine-month revenue.
- On October 19, 2021, after quarter-end, Hub acquired Choptank Transport for approximately $130m in cash and granted about $20m of restricted stock subject to vesting conditions. The deal expands refrigerated brokerage services; $1.1m of pre-close transaction costs was recorded in Q3 and nine-month G&A.
- Q3 G&A included a favorable increase in gains on transportation equipment sales, partly offset by higher legal claims and acquisition-related professional fees. Nine-month operating cash flow also reflects working-capital movements; accounts receivable used $100.1m of cash, partly offset by increases in payables and accrued expenses.
- Robles and Adame driver-related settlements totaling $4.8m had been accrued, subject to court approval. Other pending claims include California driver matters; management did not expect pending loss contingencies, after accruals, to materially affect overall results, though particular-period impacts could be material.
- NSD, acquired in December 2020, expanded residential last-mile logistics. Its results are included in logistics; acquisition-related intangibles and amortization affect reported expenses.
Important facts for investors to verify
- Whether higher freight pricing and gross margins persist as carrier, rail, fuel and driver costs change, especially in intermodal and truck brokerage.
- Whether working-capital demands—particularly receivables—remain manageable alongside planned capital spending and the Choptank cash outlay.
- Choptank’s integration, purchase economics, restricted-stock vesting terms and contribution to refrigerated brokerage growth.
- Customer concentration, lost-customer effects in logistics, and the continuing margin and utilization trends in dedicated services.
- Resolution and final court approval of the Robles and Adame settlements, and developments in other driver-related litigation.