Hub Group, Inc. Reports Third Quarter 2023 Results

Highlights:

• Diluted earnings per share (EPS) of $0.97 and revenue of $1.0 billion for the quarter
• Quarterly operating income of $43 million (4.2% of revenue) driven by performance of our Logistics Segment
• Exceptionally strong balance sheet, ending the quarter with cash and cash equivalents of over $400 million
• Announced capital allocation plan, including a stock split effectuated by stock dividend, regular quarterly cash dividend, new share repurchase authorization and long-term leverage target

OAK BROOK, Ill., Oct. 26, 2023 (GLOBE NEWSWIRE) — Hub Group, Inc. (NASDAQ:HUBG) announced third quarter 2023 net income of $30 million, and diluted earnings per share of $0.97. Net income for third quarter 2022 was $87 million, or $2.61 per diluted share. Third quarter results were impacted by lower gain on sale of assets of $7.8 million (pre-tax) as compared to the prior year ($0.18 per share), increased repair and maintenance expense of $3.0 million (pre-tax) as compared to the prior year ($0.07 per share), higher medical claims expense of $1.7 million (pre-tax) as compared to the prior year ($0.04 per share) and an increase in allowance for customer receivables of $1.1 million (pre-tax) as compared to the prior year ($0.03 per share), as well as consulting and office closure costs of $1.1 million (pre-tax, or $0.03 per share).

Capital Allocation Plan

Hub Group also announced today a comprehensive growth-focused capital allocation plan designed to drive long-term value creation and shareholder returns. Key elements of the plan include:

• Continued capital expenditure investments focused on growing the Company’s intermodal business, as well as technology investments to drive efficiency and support our customer value proposition
• Acquisition strategy focused on non-asset logistics businesses that provide an extension of our comprehensive service offering and build scale within our businesses
• 2:1 Stock split effectuated through a stock dividend in January 2024 designed to improve market liquidity and trading performance
• Initiation of a quarterly cash dividend program, initially set at $0.50 per share per year, which Hub Group’s Board of Directors intends to begin in first quarter 2024
• New $250 million share repurchase plan, replacing the remaining availability under the current authorization
• Long-term leverage target of 0.75-1.25x net debt/EBITDA supporting this capital allocation plan, including discretionary share repurchase activity scaled by the outlook for capital expenditures and acquisitions

“Despite a very soft freight environment we are seeing the benefits of our strategy to diversify and expand into less cyclical and non-asset based services, with our Logistics Segment contributing nearly 70% of our operating income in the quarter. While profitability at our ITS Segment has been challenged, we have focused on reducing our costs and driving efficiency. We are very pleased to announce our capital allocation plan, which will allow for strong organic growth and service line diversification through acquisitions while returning capital to our shareholders. We remain focused on managing our costs and capital structure and supporting our customers with great service while investing in our core business and technology to drive success in a variety of market conditions,” said Phil Yeager, Hub Group’s President and Chief Executive Officer.

Third Quarter 2023 Results

Consolidated revenue for the third quarter of 2023 was $1.0 billion as compared to $1.4 billion in third quarter 2022. The decline in revenue was driven by changes in customer rates and volumes in our ITS and Logistics Segments. Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third-party carrier costs and a higher percentage of insourced drayage. Salaries and benefits costs increased slightly relative to prior year due to $19 million of incremental expense for our drivers and warehouse employees, partially offset by an $18 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense. Company driver count increased 12% as compared to the prior year, and the acquisition of TAGG added $4 million of compensation expense for the quarter. General and administrative expense decreased $10 million as compared to prior year due to lower legal and use tax expenses, and the impairment of a leased asset in the prior year. Depreciation and amortization expense increased as compared to prior year due to investments in our container and tractor fleets, as well as amortization of intangible assets related to the acquisition of TAGG. Operating income for the quarter was $43 million (4.2% of revenue) as compared to $118 million (8.7% of revenue) in the prior year. EBITDA (non-GAAP)¹ for the quarter was $88 million.

Third quarter Intermodal and Transportation Solutions (“ITS”) Segment revenue was $595 million. Intermodal volume for the quarter decreased 16% as compared to prior year due to low transportation demand and an oversupply of truckload carrier capacity. Intermodal revenue declined due to volume, lower customer rates and lower accessorial revenue, and was offset by resilience of our dedicated service line. ITS operating income decreased to $13 million (2.3% of revenue) due to lower customer rates, volume and accessorials. These headwinds were partially offset by lower drayage costs, rail expenses and equipment costs. In third quarter 2023 we increased the portion of drayage handled on our own fleet to 78% as compared to 62% in the prior year.

Third quarter Logistics Segment revenue was $460 million, as compared to $525 million in the prior year. The decline in revenue was driven by lower revenue per load in our brokerage service line, partially offset by performance of our managed transportation, consolidation and final mile service lines, as well as contribution from our fulfillment business. Brokerage volumes were up 5% as compared to the prior year. Third quarter operating income was 6.3% of revenue as compared to 5.9% last year. Operating income was $29 million as compared to $31 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.

Capital expenditures for the third quarter of 2023 totaled $40 million. As of September 30, 2023, we had cash and cash equivalents of $401 million.

2023 Outlook

We expect our 2023 diluted earnings per share will range from $5.30 to $5.40. We estimate revenue will be approximately $4.2 billion. We project our effective tax rate for the year will be approximately 20%. We expect capital expenditures for containers, tractors, warehousing equipment and technology will range from $140 to $150 million.

Non-GAAP Financial Measure

In this press release, we present EBITDA, a non-GAAP financial measure of profitability defined as earnings before interest, taxes, depreciation and amortization. As required by the rules of the Securities and Exchange Commission (“SEC”), we have provided herein a reconciliation of this non-GAAP financial measure to Net Income, the most directly comparable measure under GAAP. Management believes that EBITDA provides relevant and useful information, which is used by our management as well as by many analysts, investors and competitors in our industry. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company’s profitability for the periods presented. EBITDA should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and is not necessarily comparable to non-GAAP measures that may be presented by other companies.

CONFERENCE CALL

Hub Group, Inc. will hold a conference call at 5:00 p.m. Eastern Time on October 26, 2023 to discuss our third quarter 2023 results.

Hosting the conference call will be Phil Yeager, President and CEO. Also participating on the call will be Brian Alexander, Chief Operating Officer, and Geoff DeMartino, Executive Vice President, Chief Financial Officer and Treasurer.

This call is being webcast and can be accessed through the Investors link on Hub Group’s web site at www.hubgroup.com. The webcast is listen-only. Those interested in participating in the question and answer session should follow the telephone dial-in instructions below.

To participate in the conference call by telephone, please pre-register at

https://register.vevent.com/register/BI5bbce1927fe04ba4bb0a27bed6a406e1

to receive the dial-in number and unique PIN. On the day of the call, dial in approximately ten minutes prior to the scheduled call time and enter the unique participant PIN received during registration. The call will be limited to 60 minutes, including questions and answers. An audio replay will be available through the Investors link on the Company’s web site at www.hubgroup.com. This replay will be available for 30 days.

CERTAIN FORWARD-LOOKING STATEMENTS: Statements in this press release that are not historical facts are forward-looking statements, provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that might cause the actual performance of Hub Group to differ materially from those expressed or implied by this discussion and, therefore, should be viewed with caution. Further information on the risks that may affect Hub Group’s business is included in filings it makes with the SEC from time to time, including those discussed under the “Risk Factors” section in Hub Group’s most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. Hub Group assumes no obligation to update any such forward-looking statements.

SOURCE:  Hub Group, Inc.

CONTACT: Geoff DeMartino of Hub Group, Inc., +1-630-271-3623

HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)
		Three Months Ended September 30,
			2023						2022
					% of						% of
		Amount			Revenue			Amount			Revenue
Operating revenue		$	1,024,835		100.0	%		$	1,355,407		100.0	%
Operating expenses:
	Purchased transportation and warehousing		772,650		75.4	%			1,023,052		75.5	%
	Salaries and benefits		138,503		13.5	%			137,666		10.1	%
	Depreciation and amortization		36,065		3.5	%			33,542		2.5	%
	Insurance and claims		11,681		1.1	%			17,615		1.3	%
	General and administrative		24,146		2.4	%			34,382		2.5	%
	Gain on sale of assets, net		(765	)	-0.1	%			(8,588	)	-0.6	%
Total operating expenses			982,280		95.8	%			1,237,669		91.3	%
Operating income			42,555		4.2	%			117,738		8.7	%
Other income (expense):
	Interest expense, net		(3,537	)	-0.3	%			(2,190	)	-0.2	%
	Interest income		2,838		0.2	%			40		0.0	%
	Other, net		(188	)	-0.0	%			(384	)	-0.0	%
Total other expense, net			(887	)	-0.1	%			(2,534	)	-0.2	%
Income before provision for income taxes			41,668		4.1	%			115,204		8.5	%
Provision for income taxes			11,209		1.1	%			27,879		2.1	%
Net income		$	30,459					$	87,325
Earnings per share
	Basic	$	0.98					$	2.63
	Diluted	$	0.97					$	2.61
Basic weighted average number of shares outstanding			31,139						33,145
Diluted weighted average number of shares outstanding			31,493						33,521

HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)
		Nine Months Ended September 30,
			2023						2022
					% of						% of
		Amount			Revenue			Amount			Revenue
Operating revenue		$	3,217,562		100.0	%		$	4,054,987		100.0	%
Operating expenses:
	Purchased transportation and warehousing		2,403,190		74.7	%			3,081,299		76.0	%
	Salaries and benefits		417,757		13.0	%			395,904		9.8	%
	Depreciation and amortization		106,899		3.3	%			97,075		2.4	%
	Insurance and claims		36,041		1.1	%			37,553		0.9	%
	General and administrative		76,445		2.4	%			93,819		2.3	%
	Gain on sale of assets, net		(5,599	)	-0.2	%			(21,097	)	-0.5	%
Total operating expenses			3,034,733		94.3	%			3,684,553		90.9	%
Operating income			182,829		5.7	%			370,434		9.1	%
Other income (expense):
	Interest expense, net		(9,623	)	-0.3	%			(5,301	)	-0.1	%
	Interest income		6,302		0.2	%			50		0.0	%
	Other, net		(81	)	-0.0	%			(446	)	-0.0	%
Total other expense, net			(3,402	)	-0.1	%			(5,697	)	-0.1	%
Income before provision for income taxes			179,427		5.6	%			364,737		9.0	%
Provision for income taxes			40,684		1.3	%			87,063		2.1	%
Net income		$	138,743					$	277,674
Earnings per share
	Basic	$	4.35					$	8.29
	Diluted	$	4.31					$	8.21
Basic weighted average number of shares outstanding			31,908						33,480
Diluted weighted average number of shares outstanding			32,208						33,807

HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
					September 30,				December 31,
						2023				2022
					(unaudited)
ASSETS
	CURRENT ASSETS:
		Cash and cash equivalents			$	400,686			$	286,642
		Accounts receivable trade, net				630,794				716,190
		Accounts receivable other				5,590				3,967
		Prepaid taxes				19,095				16,987
		Prepaid expenses and other current assets				26,649				32,914
				TOTAL CURRENT ASSETS		1,082,814				1,056,700
	Restricted investments					19,809				18,065
	Property and equipment, net					789,842				783,683
	Right-of-use assets – operating leases					193,698				102,114
	Right-of-use assets – financing leases					3,142				1,194
	Other intangibles, net					177,032				197,386
	Goodwill					629,772				629,402
	Other assets					22,023				21,537
				TOTAL ASSETS	$	2,918,132			$	2,810,081
LIABILITIES AND STOCKHOLDERS’ EQUITY
	CURRENT LIABILITIES:
		Accounts payable trade			$	345,451			$	344,751
		Accounts payable other				15,368				15,563
		Accrued payroll				26,088				66,669
		Accrued other				124,860				132,324
		Lease liability – operating leases				39,688				29,547
		Lease liability – financing leases				2,060				1,175
		Current portion of long term debt				102,773				101,741
				TOTAL CURRENT LIABILITIES		656,288				691,770
	Long term debt					243,834				240,724
	Non-current liabilities					48,496				43,505
	Lease liability – operating leases					165,229				78,557
	Lease liability – financing leases					997				–
	Deferred taxes					174,220				155,923
	STOCKHOLDERS’ EQUITY:
		Preferred stock, $.01 par value; 2,000,000 shares authorized;
			no shares issued or outstanding in 2023 and 2022.			–				–
		Common stock
			Class A: $.01 par value; 97,337,700 shares authorized; 41,312,185
				shares issued in both 2023 and 2022; 31,188,571 shares outstanding
				in 2023 and 32,646,621 shares outstanding in 2022.		413				413
			Class B: $.01 par value; 662,300 shares authorized;
				574,903 shares issued and outstanding in both 2023 and 2022.		6				6
		Additional paid-in capital				220,247				208,165
		Purchase price in excess of predecessor basis, net of tax
		benefit of $10,306				(15,458	)			(15,458	)
		Retained earnings				1,920,325				1,781,582
		Accumulated other comprehensive loss				(167	)			(214	)
		Treasury stock; at cost, 10,123,614 shares in 2023
			and 8,665,564 shares in 2022			(496,298	)			(374,892	)
			TOTAL STOCKHOLDERS’ EQUITY			1,629,068				1,599,602
				TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,918,132			$	2,810,081

HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
					Nine Months Ended September 30,
						2023				2022
Cash flows from operating activities:
	Net income				$	138,743			$	277,674
	Adjustments to reconcile net income
		to net cash provided by operating activities:
			Depreciation and amortization			136,775				111,413
			Impairment of right-of-use asset			2,012				5,361
			Deferred taxes			18,832				(1,427	)
			Compensation expense related to share-based compensation plans			16,031				14,973
			Gain on sale of assets, net			(5,599	)			(21,097	)
	Changes in operating assets and liabilities, net of acquisitions:
			Restricted investments			(1,744	)			7,368
			Accounts receivable, net			83,664				(55,994	)
			Prepaid taxes			(2,108	)			(1,408	)
			Prepaid expenses and other current assets			6,161				6,818
			Other assets			(2,515	)			(3,381	)
			Accounts payable			516				(21,169	)
			Accrued expenses			(46,243	)			41,165
			Non-current liabilities			(21,848	)			(9,825	)
				Net cash provided by operating activities		322,677				350,471
Cash flows from investing activities:
	Proceeds from sale of equipment					20,208				33,994
	Purchases of property and equipment					(105,667	)			(157,664	)
	Acquisitions, net of cash acquired					108				(102,661	)
				Net cash used in investing activities		(85,351	)			(226,331	)
Cash flows from financing activities:
	Purchase of treasury stock					(117,352	)			(75,000	)
	Purchase of treasury stock from related party					–				(34,767	)
	Repayments of long term debt					(80,965	)			(81,905	)
	Stock withheld for payments of withholding taxes					(8,003	)			(5,778	)
	Finance lease payments					(2,097	)			(1,582	)
	Proceeds from issuance of debt					85,107				127,017
				Net cash used in financing activities		(123,310	)			(72,015	)
	Effect of exchange rate changes on cash and cash equivalents					28				12
Net increase in cash and cash equivalents						114,044				52,137
Cash and cash equivalents beginning of period						286,642				159,784
Cash and cash equivalents end of period					$	400,686			$	211,921

HUB GROUP, INC.
FINANCIAL INFORMATION BY SEGMENT
(in thousands)
(unaudited)
	Three Months								Nine Months
	Ended September 30,								Ended September 30,
Operating Revenue		2023				2022				2023				2022
Intermodal and Transportation Solutions	$	595,308			$	856,001			$	1,919,189			$	2,507,722
Logistics		460,309				525,178				1,382,999				1,614,775
Inter-segment eliminations		(30,782	)			(25,772	)			(84,626	)			(67,510	)
Total operating revenue	$	1,024,835			$	1,355,407			$	3,217,562			$	4,054,987
	Three Months								Nine Months
	Ended September 30,								Ended September 30,
Operating Income		2023				2022				2023				2022
Intermodal and Transportation Solutions	$	13,484			$	86,772			$	94,639			$	273,069
Logistics		29,071				30,966				88,190				97,365
Total operating income	$	42,555			$	117,738			$	182,829			$	370,434
	Three Months								Nine Months
	Ended September 30,								Ended September 30,
Depreciation and Amortization		2023				2022				2023				2022
Intermodal and Transportation Solutions	$	27,493			$	26,020			$	81,751			$	75,778
Logistics		8,572				7,522				25,148				21,297
Total depreciation and amortization	$	36,065			$	33,542			$	106,899			$	97,075

RECONCILIATION OF NET INCOME TO EBITDA (1)
(in thousands)
(unaudited)
	Three Months						Nine Months
	Ended September 30,						Ended September 30,
		2023			2022			2023			2022
Net Income	$	30,459		$	87,325		$	138,743		$	277,674
Interest Expense, net		699			2,150			3,321			5,251
Depreciation and Amortization		45,301			39,491			136,775			111,413
Provision for Income Taxes		11,209			27,879			40,684			87,063
EBITDA	$	87,668		$	156,845		$	319,523		$	481,401

(1) See the “Non-GAAP Financial Measure” section of this release for the definition of EBITDA and a discussion of this non-GAAP financial measure.