Hub Group, Inc. — Q2 2021 Form 10-Q
Business context and period. Hub Group provides intermodal, logistics, truck brokerage and dedicated transportation services. This unaudited filing covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Results include NonstopDelivery (NSD), acquired in December 2020, within logistics.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $981.3m | $779.2m | $1,900.9m | $1,618.1m |
| Gross margin | $120.6m; 12.3% | $107.2m; 13.8% | $229.3m; 12.1% | $211.8m; 13.1% |
| Operating income | $36.9m; 3.8% | $21.0m; 2.7% | $61.0m; 3.2% | $40.7m; 2.5% |
| Net income | $26.6m | $13.2m | $43.8m | $26.4m |
| Diluted EPS | $0.78 | $0.39 | $1.30 | $0.79 |
| Operating cash flow | Not presented separately | Not presented separately | $173.9m | $111.5m |
Q2 revenue by business line: intermodal $550.2m (+23.0% year over year); logistics $222.4m (+25.5%); truck brokerage $140.0m (+61.5%); dedicated $68.7m (+0.8%). For the first half, respective revenues were $1,056.2m (+14.2%), $439.5m (+16.4%), $267.3m (+44.7%) and $137.9m (+5.5%).
Balance sheet and liquidity at June 30: cash and equivalents were $246.0m, versus $124.5m at year-end 2020. Current assets were $799.7m and current liabilities $592.2m. Total debt was $230.0m, down from $270.4m at December 31, 2020; $86.9m was current. The $350m unsecured credit agreement matures July 1, 2022; unused available borrowings were $312.6m, net of $37.4m in letters of credit. Hub reported compliance with debt covenants. Management said available cash, operating cash flow and facility borrowings should meet needs for at least 12 months.
First-half investing cash outflow was $6.5m, including $26.3m of capital spending and $19.9m of equipment-sale proceeds. Financing cash outflow was $45.9m, including $57.9m of debt repayments and $17.5m of debt issuance. Cash increased $121.5m during the period.
Material changes and drivers
- Q2 revenue rose 25.9%; first-half revenue rose 17.5%. Management attributed growth to higher intermodal pricing and volume, brokerage revenue per load and NSD and retail supplier-solutions contributions in logistics.
- Gross profit increased, but gross margin percentage declined in both comparison periods as transportation costs grew faster than revenue. Management cited higher purchased transportation, fuel, repositioning and drayage costs. Q2 brokerage and dedicated margins were particularly pressured; first-half logistics margin improved.
- Operating income and net income increased year over year, supported by higher gross profit and lower aggregate operating expenses. General and administrative expense declined from elevated prior-year costs, including COVID-19 refrigerated-trailer donations and consulting services; current-period equipment-sale gains also benefited the comparison.
- First-half operating cash flow improved by $62.4m year over year. The filing attributes much of the working-capital contribution to accounts payable; accounts receivable used $20.1m of cash in the 2021 period.
Outlook, risks and unusual items
- No full-year revenue or earnings guidance is provided in the supplied filing text. Management expects a 2021 effective tax rate of approximately 24% and estimates $140m–$150m of capital expenditures for the remainder of 2021, principally for tractors, containers, technology and construction; funding is expected from cash and debt.
- Management highlighted freight-market and customer-liquidity uncertainty, COVID-19 impacts, labor and driver availability, rail and carrier capacity and costs, fuel prices, competition, customer concentration, cybersecurity and regulatory and litigation risks. The top 50 customers represented about 70% of first-half revenue.
- California driver-related Robles and Adame matters have a proposed $4.8m settlement accrued since 2019, subject to final court approval. The company reported no material developments in legal proceedings during the first half; other claims remain, and management said outcomes for a particular period could be material despite not expecting an overall material adverse effect after accruals.
- Hub acquired NSD for total consideration of approximately $105.9m in December 2020. First-half 2021 acquisition cash outflow was $0.1m for a post-closing adjustment. NSD expands residential last-mile delivery and uses a network of more than 170 carriers.
- The company deferred $11.3m of 2020 payroll taxes under the CARES Act; half is due in December 2021 and half in December 2022. Disclosure controls were assessed as effective; NSD integration and related internal-control evaluation were ongoing.
Important facts for investors to verify
- Whether higher transportation and carrier costs continue to compress gross margin, and whether pricing can offset them across intermodal, brokerage and dedicated.
- How much of operating cash flow reflects sustainable earnings versus working-capital timing, particularly the increase in accounts payable.
- Execution of the $140m–$150m remaining-2021 capital plan, financing needs and debt maturities, including the July 2022 credit-agreement maturity.
- NSD’s contribution to logistics growth and profitability, and progress integrating its operations and controls.
- Final court approval and payment timing for the proposed $4.8m settlement, plus developments in other driver-related claims.