Hub Group, Inc. — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010. Hub Group provides intermodal, truck brokerage, and logistics services. Financial amounts below are in millions of dollars unless otherwise noted; interim results may be affected by seasonality.
Financial performance
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Revenue | $458.1 | $362.6 | $875.4 | $714.3 |
| Gross margin | $50.6 | $45.8 | $99.4 | $90.9 |
| Gross margin as % of revenue | 11.0% | 12.6% | 11.4% | 12.7% |
| Operating income | $15.7 | $13.4 | $30.0 | $24.1 |
| Net income | $9.6 | $8.3 | $18.3 | $14.5 |
| Diluted EPS | $0.26 | $0.22 | $0.49 | $0.39 |
- Q2 revenue rose 26.3%; six-month revenue rose 22.6%. Growth spanned all business lines. Q2 intermodal revenue increased 26.1%, truck brokerage 20.9%, and logistics 38.4%.
- Gross margin dollars increased, but gross margin rate declined. Management attributed the rate pressure principally to tighter truck brokerage capacity and lower intermodal pricing and mix.
- Q2 net income increased 16.0%; six-month net income increased 26.6%. Six-month operating margin was 3.4%, versus 3.4% a year earlier; Q2 operating margin was 3.4%, versus 3.7%.
Cash flow, liquidity, and debt
- Six-month operating cash flow was $15.0 million, down from $30.1 million in 2009. The company reported a $52.5 million increase in accounts receivable, partly offset by a $36.3 million increase in accounts payable.
- Cash and cash equivalents were $128.4 million at June 30, 2010, versus $126.9 million at December 31, 2009. Current assets were $346.3 million and current liabilities $186.9 million. The balance sheet reports no outstanding debt balance.
- Investing cash outflow was $1.3 million; financing cash outflow was $12.2 million, including $12.4 million used to repurchase treasury stock.
- The amended revolving credit facility has $10.0 million of maximum unsecured capacity, expires March 2013, and bears interest at LIBOR plus 1.75%. After $2.6 million of outstanding letters of credit, $7.4 million was available. Hub Group reported covenant compliance.
Management commentary, outlook, and risks
- Management said cash, operating cash flow, and available borrowing capacity should meet cash needs for at least the next 12 months.
- Expected 2010 capital expenditures were $30–$32 million, including approximately $24.8 million for 2,500 53-foot containers expected to be delivered May through November. Possible property purchases could increase spending beyond that range.
- The company had $18.5 million remaining under its $30 million share-repurchase authorization, which expires March 31, 2011; further purchases may occur as market conditions warrant.
- The top 50 customers represented approximately 61% of revenue. Management cited potential risks including market and economic conditions, customer concentration and financial health, railroad relationships and service, vendor capacity and costs, fuel prices, competition, regulation, and recruiting and retaining drivers and owner-operators.
- Potential maximum exposure on owner-operator tractor lease guarantees was approximately $6.2 million, compared with $3.8 million at year-end 2009; the recorded liability was approximately $0.1 million. No material defaults occurred in the first half. Management did not expect existing litigation to have a material adverse effect.
- No specific earnings or revenue guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether revenue growth can translate into improved gross margin rates as capacity tightness, intermodal pricing, and mix evolve.
- Whether receivables and working-capital movements continue to constrain operating cash flow despite higher earnings.
- Actual container purchases, total capital expenditures, and any additional spending if property is acquired.
- Customer concentration and the status of significant customers, along with exposure under the lease guarantees.
- Available credit, covenant compliance, and the pace and price of any additional share repurchases.