Business Context and Reporting Period
Company: Hub Group, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2001
Business Overview: Hub Group provides intermodal transportation, truckload brokerage, and logistics services. The company operates in a soft economic environment which has negatively impacted growth, particularly in intermodal revenue due to the loss of major steamship customers.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2000 |
|---|---|---|---|
| Revenue | $323.0 million | $987.0 million | $1,027.7 million |
| Gross Margin | $44.6 million (13.8%) | $135.9 million (13.8%) | $128.3 million (12.5%) |
| Operating Income | $0.5 million | $6.9 million | $14.0 million |
| Net Income (Loss) | $(1.1) million | $(0.7) million | $3.5 million |
| Diluted EPS | $(0.14) | $(0.09) | $0.46 |
| Cash from Operations (9mo) | $6.8 million | ||
| Total Debt (Current + Long-term) | $123.1 million | ||
| Cash and Equivalents | $0 (Intentionally maintained low) |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 8.9% for the quarter and 4.0% for the nine-month period compared to 2000. Intermodal revenue dropped significantly (14.9% Q3, 8.5% YTD) due to the cessation of business with two large steamship customers.
- Profitability Reversal: The company reported a net loss for both the quarter and the nine-month period in 2001, contrasting with net income in the same periods of 2000.
- Expense Increases: Selling, general, and administrative (SG&A) expenses rose 45.2% in Q3 and 21.7% YTD. This was primarily driven by a $4.7 million bad debt write-off related to a Korean steamship line customer.
- Impairment Charges: A $3.4 million pretax charge was recorded in Q1 2001 for the impairment of e-Logistics software following the exit from the internet home delivery business.
- Depreciation: Depreciation and amortization of property and equipment increased 107.7% YTD, partly due to a change in estimated useful lives of assets and accelerated depreciation of replaced software.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Bad Debt: $4.7 million write-off for a Korean steamship line customer forced into liquidation.
- Asset Impairment: $3.4 million charge for e-Logistics software deemed to have zero fair value.
- Restructuring: Remaining accruals from a 2000 accounting restructuring were reversed in Q3, reducing expenses.
- Accounting Changes: The company will adopt FASB Statement 142 on January 1, 2002. This will cease goodwill amortization (expected to reduce annual expense by ~$5.7 million) but requires annual impairment testing.
- Liquidity Strategy: The company intentionally maintains low cash balances to reduce borrowings. It relies on a $50 million revolving credit facility ($14 million available as of Sep 30, 2001) and $50 million in private placement notes.
- Risks: Risks include competitive pressures, market growth rates, rail/truck capacity changes, and interest rate fluctuations. The company uses an interest rate swap to hedge variable rate debt exposure.
Investor Verification Checklist
- Customer Concentration: Verify the extent of revenue reliance on remaining steamship customers following the loss of two major accounts.
- Bad Debt Recovery: Confirm the finality of the $4.7 million write-off and the likelihood of any recovery from the Korean customer's liquidation.
- Goodwill Valuation: Assess the potential impact of the upcoming FASB Statement 142 adoption on future earnings, specifically regarding potential goodwill impairment charges.
- Debt Covenants: Review the amended credit facility terms regarding EBITDAM calculations, specifically the add-back of the bad debt charge, to ensure ongoing compliance.
- Working Capital: Monitor accounts receivable days sales outstanding, which temporarily increased due to new billing system implementation issues.