Hub Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Hub Group provides intermodal, logistics, truck brokerage and dedicated transportation services. Its December 2020 acquisition of NonstopDelivery (NSD) expanded logistics into residential last-mile delivery.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $919.6 million | $838.9 million | +9.6% |
| Gross margin | $108.7 million; 11.8% of revenue | $104.6 million; 12.5% | +4.0% in dollars; down 70 bps in margin |
| Operating income | $24.1 million; 2.6% of revenue | $19.8 million; 2.4% | +21.7% |
| Net income | $17.2 million | $13.2 million | +30.2% |
| Diluted EPS | $0.51 | $0.40 | +$0.11 |
| Cash from operations | $127.4 million | $40.7 million | +$86.7 million |
Revenue by line: intermodal $506.0 million (+6%), logistics $217.0 million (+8%), truck brokerage $127.3 million (+30%) and dedicated $69.3 million (+11%). Brokerage growth reflected a 36% rise in revenue per load, partly offset by 6% lower volume. Intermodal revenue benefited from higher pricing and 2% volume growth.
Transportation costs rose 10.4%, faster than revenue, and gross margin percentage declined. Management attributed the pressure mainly to higher purchased transportation costs, market capacity constraints, winter storms and equipment repositioning in intermodal. Logistics margin improved, including from NSD and profitability initiatives; margins declined in intermodal, brokerage and dedicated. General and administrative expense fell $7.1 million, primarily from lower professional services and a higher gain on equipment sales. The effective tax rate declined to 21.9% from 24.3%, mainly due to reversal of unrecognized tax benefits.
Cash, debt and liquidity
- Cash and cash equivalents were $226.3 million at March 31, 2021, versus $124.5 million at December 31, 2020.
- Long-term debt, including current maturities, was $243.9 million, down from $270.4 million at year-end. Net of cash, debt was approximately $17.6 million.
- Current assets were $755.9 million and current liabilities $580.9 million. Unused available borrowings under the credit agreement were $312.6 million; letters of credit totaled $37.4 million. The company was in compliance with debt covenants.
- Operating cash flow increased substantially, driven in part by a favorable $70.5 million contribution from changes in operating assets and liabilities. Investing cash flow was $5.4 million, including $14.9 million in equipment-sale proceeds and $9.5 million of capital expenditures. Financing cash outflow was $31.0 million, including $33.4 million of debt repayments.
Outlook, risks and notable items
- Management expects cash, operating cash flows and available borrowings to cover cash needs for at least the next 12 months. Estimated capital expenditures for the remainder of 2021 are $155 million to $165 million, primarily for tractors, trailers, containers and technology, funded with cash and debt. No specific earnings or revenue guidance is provided in the filing.
- Management cited ongoing evaluation of economic conditions, freight-market demand and customers’ liquidity. Risks include COVID-19 effects, transportation capacity and cost volatility, driver recruitment and retention, competition, customer concentration, fuel and insurance costs, regulation and technology/cybersecurity. The top 50 customers represented approximately 71% of Q1 revenue.
- NSD acquisition accounting remains preliminary, including fair-value and purchase-accounting estimates. The acquisition added $12.1 million to goodwill during the quarter through purchase-accounting adjustments.
- California driver-related Robles and Adame matters were previously agreed in principle to settle for $4.8 million, accrued in 2019 and subject to final court approval. The company stated other pending claims were not expected to have a material adverse effect after existing accruals, while noting actual outcomes could be material in an individual period.
- Operating results are subject to seasonality and interim results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether revenue growth and pricing can offset transportation-cost inflation and restore gross margin percentage.
- How much of the strong operating cash flow reflects sustainable earnings versus working-capital timing.
- Actual 2021 capital spending, debt levels and liquidity after planned fleet and technology investments.
- NSD’s contribution to logistics growth and the final purchase-accounting valuation.
- Customer concentration, freight capacity and demand trends, and developments in the California litigation.