Hub Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited results compared with Q1 2021. Hub Group provides intermodal and transportation services, truck brokerage, and logistics solutions.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,298.1 million | $919.6 million | +41% |
| Gross margin | $215.0 million; 16.6% | $108.7 million; 11.8% | +98%; +4.8 percentage points |
| Operating income | $115.1 million; 8.9% of revenue | $24.1 million; 2.6% | +378% |
| Net income | $87.5 million | $17.2 million | +408% |
| Diluted EPS | $2.58 | $0.51 | +$2.07 |
| Operating cash flow | $80.2 million | $127.4 million | -$47.2 million |
Revenue growth reflected higher rates and volume in intermodal, strong truck brokerage growth including Choptank, and logistics expansion. Intermodal and Transportation Solutions revenue rose 35% to $773.6 million; truck brokerage rose 132% to $295.6 million; logistics rose 6% to $228.9 million. Intermodal revenue per load increased 35% and volume increased 4%. Brokerage growth also reflected Choptank and a 33% increase in revenue per load.
Gross margin improvement was broad-based. Intermodal margin percentage increased 7.9 percentage points; logistics margin percentage increased 2.3 points; truck brokerage margin percentage decreased 3.6 points amid higher purchased transportation costs. Purchased transportation costs increased 40%, driven by activity, rail and fuel costs, carrier costs, and repositioning. Salaries and benefits rose to $68.9 million, but declined as a share of revenue to 5.3% from 6.2%. The effective tax rate was 22.9%, versus 21.9%.
Cash, debt, and liquidity
- Cash and cash equivalents were $206.9 million at March 31, 2022, up from $159.8 million at year-end; restricted investments were $21.5 million.
- Operating cash flow was $80.2 million. Capital expenditures were $30.9 million, partly offset by $6.4 million in equipment-sale proceeds; investing cash outflow was $24.5 million.
- Total equipment-note debt was $272.2 million, including $97.6 million current and $174.7 million long-term. The company had no borrowings under its credit agreement.
- A new five-year, $350 million unsecured credit agreement was entered into in February 2022. After $41.3 million in letters of credit, $308.7 million was available. Hub reported compliance with debt covenants.
- Management said cash, operating receipts, and other financing sources should be sufficient for planned growth and needs over the next 12 months and foreseeable future.
Material developments and outlook
- Choptank Transport, acquired in October 2021 for approximately $127.6 million in consideration, expanded brokerage and refrigerated transportation capabilities. Purchase accounting remained preliminary; acquired intangibles generated $2.3 million of Q1 amortization.
- Dedicated and drayage operations were combined organizationally, and prior-period revenue was recast into the Intermodal and Transportation Solutions line.
- Management described demand as strong and transportation capacity as constrained, with driver shortages and equipment-production challenges supporting higher pricing. It expected these market conditions to continue through 2022.
- Hub ordered approximately 6,500 containers, substantially all expected to be delivered in 2022, including refrigerated intermodal containers. Estimated 2022 capital expenditures are $240–$265 million, including $210–$225 million for transportation equipment.
- Management cited margin initiatives including network optimization, reducing empty miles and repositioning costs, improving accessorial-cost recovery, and increasing driver and asset utilization. No earnings or revenue guidance was provided in the filing.
Risks, contingencies, and unusual items
- Risks to the outlook include weaker consumer spending, inflation and fuel costs, higher interest rates, geopolitical events, shifts in spending from goods to services, increased transportation supply, aggressive competition, and inability to pass cost increases to customers.
- Other disclosed risks include driver and labor shortages, rail service or capacity changes, customer financial deterioration or loss, fuel-price volatility, cybersecurity and technology issues, regulation, weather, and pandemic-related disruption.
- One customer generated more than 10% of quarterly revenue; the top 50 customers represented approximately 63%.
- Robles and Adame driver-related matters had a proposed $4.8 million settlement recorded in 2019; preliminary approval of the class settlement remained pending. Management did not expect other pending claims to have a material adverse effect after existing accruals, while noting particular-period outcomes could be material.
- Operating cash flow declined year over year, primarily due to higher accounts receivable and lower accounts payable and accrued expenses, partly offset by higher net income.
Important facts for investors to verify
- Whether strong pricing and constrained capacity persist, and how changes in freight demand, fuel, and carrier costs affect margins.
- Whether brokerage growth and Choptank integration deliver sustainable returns, given preliminary purchase accounting and added amortization.
- Whether planned container and equipment spending supports growth while preserving cash flow and liquidity.
- How working-capital movements, particularly receivables, affect operating cash conversion.
- The status and ultimate cost of the Robles and Adame settlement and other driver-related litigation.