Hub Group, Inc. — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also provides unaudited fourth-quarter results. Hub Group is an asset-light freight transportation manager offering intermodal, truck brokerage and logistics services across North America; intermodal accounted for 70% of 2010 revenue.
Financial performance
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $1,833.7 million | $1,511.0 million |
| Gross margin | $213.4 million; 11.6% of revenue | $185.7 million; 12.3% of revenue |
| Operating income | $69.9 million; 3.8% of revenue | $55.5 million; 3.7% of revenue |
| Net income | $43.5 million | $34.3 million |
| Diluted EPS | $1.16 | $0.91 |
| Cash from operations | $37.7 million | $45.2 million |
By service line, revenue grew 21.8% in intermodal, 14.5% in brokerage and 30.7% in logistics. Intermodal growth reflected 19% higher volume and a 5% fuel-related increase, partly offset by mix; pricing was flat. Brokerage growth reflected higher volume and fuel, with price and mix flat. Logistics growth came from new and existing customers.
Revenue rose 21.4% and net income rose 26.9% year over year, recovering from the 2009 downturn. However, gross margin as a percentage of revenue fell to 11.6% from 12.3%, mainly because tighter truck capacity raised brokerage costs and logistics growth skewed toward lower-margin transactional business. Operating margin improved slightly as salaries and general and administrative costs declined as a share of revenue.
Fourth-quarter 2010 revenue was $479.9 million versus $407.9 million in fourth-quarter 2009; net income was $12.5 million versus $10.0 million, and diluted EPS was $0.34 versus $0.26.
Cash, liquidity and capital
- Cash and cash equivalents were $115.1 million at year-end, down from $126.9 million. Operating cash flow was $37.7 million; investing used $24.8 million, including $25.6 million of capital expenditures; financing used $24.6 million, primarily for share repurchases.
- Accounts receivable increased to $185.9 million from $145.3 million; the cash-flow statement reports a $46.6 million use of cash from receivables.
- No borrowings were outstanding under the credit facility. The amended revolving facility has a $10 million maximum commitment, runs through March 2013, and had $7.4 million of available borrowing capacity at year-end after letters of credit. The company reported compliance with covenants.
- Stockholders’ equity was $376.3 million. The company repurchased 784,197 shares for $25.1 million during 2010; $6.4 million remained under the authorization at year-end.
Outlook, risks and notable items
- Management expected 2011 capital expenditures of $23–25 million. It had contracted for 3,000 containers costing approximately $33 million if purchased, but had not decided whether to buy or lease them. A potential operating-center purchase could add $15–20 million of capital spending.
- Management estimated a 38.5% effective tax rate for 2011 and expected depreciation and amortization to approximate 2010 levels unless it purchased an operating center. No specific revenue or earnings guidance was provided.
- Principal risks include reliance on railroads and third-party drayage and trucking capacity; freight-rate and fuel-cost changes; labor shortages or stoppages; economic cyclicality; customer concentration; equipment availability; and regulatory changes, including independent-contractor classification and emissions requirements. The 20 largest customers represented approximately 43% of revenue, although no single customer exceeded 10%.
- Potential commitments include $36.3 million of minimum operating-lease payments and guarantees of certain owner-operator tractor leases, with maximum exposure of approximately $6.8 million. Management reported no material defaults or potential material defaults under those guarantees.
- Management said ordinary-course litigation was not expected to materially affect financial position or results. The annual goodwill impairment test resulted in no impairment charge. Independent auditors gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether 2010’s volume-led revenue recovery can continue without further gross-margin compression, particularly in brokerage and transactional logistics.
- Whether accounts receivable growth and lower operating cash flow relative to net income indicate a sustained working-capital pressure.
- The final purchase-versus-lease decision and funding impact for the 3,000-container commitment, and whether the contemplated operating-center purchase proceeds.
- Available revolver capacity after letters of credit, and the effects of planned investment and repurchases on liquidity.
- Exposure to rail service, carrier capacity, top-customer retention, driver availability, and potential regulatory or emissions-related costs.