Hub Group, Inc. Reports Second Quarter 2023 Results

Jul 27, 2023

Highlights:

Diluted earnings per share (EPS) of $1.44 for the quarter
Second quarter revenue of $1.0 billion
Quarterly operating income of $62 million (6.0% of revenue) driven by performance of our Logistics Segment
Continued focus on return of capital with $100 million of shares repurchased in the quarter
Exceptionally strong balance sheet, ending the quarter with cash and cash equivalents of $342 million

OAK BROOK, Ill., July 27, 2023 (GLOBE NEWSWIRE) -- Hub Group, Inc. (HUBG, Financial) announced second quarter 2023 net income of $47 million, and diluted earnings per share of $1.44. Net income for second quarter 2022 was $103 million, or $3.03 per diluted share.

“Challenging market conditions have persisted throughout 2023 that have impacted demand for our services. 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 half of our operating income in the quarter, which has helped offset softer profitability at our ITS Segment. We performed well during this year’s intermodal bid season and are providing excellent service which has positioned us to grow as inventory levels normalize and demand increases. We returned $100 million of capital to our shareholders through share repurchases in the second quarter. 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.

Second Quarter 2023 Results

Consolidated revenue for the second quarter of 2023 was $1.0 billion as compared to $1.4 billion in second quarter 2022. The decline in revenue was driven by changes in customer rate 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, partially offset by higher equipment and rail costs. Salaries and benefits costs increased $12 million relative to prior year due to $30 million of incremental expense related to growth of our driver and warehouse employee headcount, partially offset by an $18 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense. General and administrative expense decreased as compared to prior year due to lower legal and acquisition-related outside services spending. 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 Logistics, LLC (“TAGG”). Operating income for the quarter was $62 million (6.0% of revenue) as compared to $138 million (9.8% of revenue) in the prior year. EBITDA (non-GAAP)¹ for the quarter was $108 million.

Second quarter Intermodal and Transportation Solutions (“ITS”) Segment revenue was $615 million. Intermodal volume for the quarter decreased 17% as compared to prior year, driven by elevated retailer inventory levels and soft import activity that impacted demand for our services. Intermodal revenue per load was impacted by changes in customer rates, fuel and mix. ITS operating income decreased to $32 million (5.2% of revenue) as compared to $101 million (11.5% of revenue) in the prior year due to lower volume, lower customer rates, higher equipment costs and lower surcharges and accessorial income. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 79% in second quarter 2023 as compared to 62% in the prior year, as well as an improvement in profitability at our Dedicated service line.

Second quarter Logistics Segment revenue was $454 million, as compared to $549 million in the prior year. The decline in revenue was driven by lower revenue per load in our brokerage service line and lower managed transportation service line revenue, partially offset by revenue from TAGG. Brokerage volumes were down slightly as compared to the prior year but increased relative to first quarter. Second quarter operating income was 6.7% of revenue as compared to 6.8% last year. Operating income was $30 million as compared to $37 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.

Capital expenditures for the second quarter of 2023 totaled $39 million. As of June 30, 2023, we had cash and cash equivalents of $342 million.

2023 Outlook

We expect our 2023 diluted earnings per share will range from $5.80 to $6.40. We estimate revenue will range from $4.3 to $4.5 billion. We project our effective tax rate for the year will be 20.0-21.0%. 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 July 27, 2023 to discuss our second 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/BIc90f715b9f6743c8b6a0cc30dedd99b9

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 June 30, 2023 2022 % of % of AmountRevenue AmountRevenueOperating revenue $1,040,462 100.0% $1,401,456 100.0% Operating expenses: Purchased transportation and warehousing 763,609 73.4% 1,062,983 75.9%Salaries and benefits 141,823 13.6% 129,499 9.2%Depreciation and amortization 35,386 3.4% 32,244 2.3%Insurance and claims 11,676 1.1% 10,645 0.8%General and administrative 26,757 2.6% 36,213 2.6%Gain on sale of assets, net (859)-0.1% (7,764)-0.6%Total operating expenses 978,392 94.0% 1,263,820 90.2% Operating income 62,070 6.0% 137,636 9.8% Other income (expense): Interest expense, net (3,116)-0.3% (1,407)-0.1%Interest income 2,087 0.2% 5 0.0%Other, net 69 0.0% (195)-0.0%Total other expense, net (960)-0.1% (1,597)-0.1% Income before provision for income taxes 61,110 5.9% 136,039 9.7% Provision for income taxes 14,605 1.4% 33,193 2.4% Net income $46,505 $102,846 Earnings per share Basic $1.45 $3.06 Diluted $1.44 $3.03 Basic weighted average number of shares outstanding 32,037 33,651 Diluted weighted average number of shares outstanding 32,293 33,935

HUB GROUP, INC.CONSOLIDATED STATEMENTS OF EARNINGS(in thousands, except per share amounts)(unaudited) Six Months Ended June 30, 2023 2022 % of % of AmountRevenue AmountRevenueOperating revenue $2,192,727 100.0% $2,699,579 100.0% Operating expenses: Purchased transportation and warehousing 1,630,540 74.4% 2,058,248 76.2%Salaries and benefits 279,254 12.7% 258,238 9.6%Depreciation and amortization 70,835 3.2% 63,533 2.4%Insurance and claims 24,359 1.1% 19,938 0.7%General and administrative 52,298 2.4% 59,435 2.2%Gain on sale of assets, net (4,834)-0.2% (12,509)-0.5%Total operating expenses 2,052,452 93.6% 2,446,883 90.6% Operating income 140,275 6.4% 252,696 9.4% Other income (expense): Interest expense, net (6,086)-0.3% (3,110)-0.1%Interest income 3,463 0.2% 9 0.0%Other, net 108 0.0% (63)-0.0%Total other expense, net (2,515)-0.1% (3,164)-0.1% Income before provision for income taxes 137,760 6.3% 249,532 9.3% Provision for income taxes 29,475 1.3% 59,183 2.2% Net income $108,285 $190,349 Earnings per share Basic $3.35 $5.66 Diluted $3.33 $5.61 Basic weighted average number of shares outstanding 32,293 33,647 Diluted weighted average number of shares outstanding 32,566 33,950

HUB GROUP, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share data) June 30, December 31, 2023 2022 (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $342,429 $286,642 Accounts receivable trade, net 612,163 716,190 Accounts receivable other 4,612 3,967 Prepaid taxes 15,258 16,987 Prepaid expenses and other current assets 15,445 32,914 TOTAL CURRENT ASSETS 989,907 1,056,700 Restricted investments 20,262 18,065 Property and equipment, net 783,127 783,683 Right-of-use assets - operating leases 167,681 102,114 Right-of-use assets - financing leases 3,744 1,194 Other intangibles, net 183,634 197,386 Goodwill 629,407 629,402 Other assets 22,280 21,537 TOTAL ASSETS $2,800,042 $2,810,081 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable trade $293,005 $344,751 Accounts payable other 12,213 15,563 Accrued payroll 23,292 66,669 Accrued other 128,825 132,324 Lease liability - operating leases 35,687 29,547 Lease liability - financing leases 2,365 1,175 Current portion of long term debt 98,350 101,741 TOTAL CURRENT LIABILITIES 593,737 691,770 Long term debt 238,213 240,724 Non-current liabilities 48,832 43,505 Lease liability - operating leases 141,450 78,557 Lease liability - financing leases 1,288 - Deferred taxes 165,786 155,923 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; 31,402,008 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 214,356 208,165 Purchase price in excess of predecessor basis, net of tax benefit of $10,306 (15,458) (15,458)Retained earnings 1,889,867 1,781,582 Accumulated other comprehensive loss (136) (214)Treasury stock; at cost, 9,910,177 shares in 2023 and 8,665,564 shares in 2022 (478,312) (374,892)TOTAL STOCKHOLDERS' EQUITY 1,610,736 1,599,602 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$2,800,042 $2,810,081

HUB GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income $108,285 $190,349 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 91,474 71,922 Impairment of right-of-use asset 2,012 - Deferred taxes 10,837 3,279 Compensation expense related to share-based compensation plans 10,615 10,237 Gain on sale of assets, net (4,834) (12,509)Changes in operating assets and liabilities, net of acquisitions: Restricted investments (2,197) 5,200 Accounts receivable, net 103,270 (93,767)Prepaid taxes 1,729 (2,166)Prepaid expenses and other current assets 17,469 9,664 Other assets (1,899) (2,517)Accounts payable (55,085) 3,380 Accrued expenses (47,700) 23,251 Non-current liabilities (12,595) (5,588)Net cash provided by operating activities 221,381 200,735 Cash flows from investing activities: Proceeds from sale of equipment 15,135 18,584 Purchases of property and equipment (65,635) (85,942)Acquisitions, net of cash acquired 108 - Net cash used in investing activities (50,392) (67,358) Cash flows from financing activities: Purchase of treasury stock (100,026) - Repayments of long term debt (56,191) (54,114)Stock withheld for payments of withholding taxes (7,818) (5,715)Finance lease payments (1,501) (1,059)Proceeds from issuance of debt 50,289 66,194 Net cash (used in) provided by financing activities (115,247) 5,306 Effect of exchange rate changes on cash and cash equivalents 45 9 Net increase in cash and cash equivalents 55,787 138,692 Cash and cash equivalents beginning of period 286,642 159,784 Cash and cash equivalents end of period $342,429 $298,476

HUB GROUP, INC.FINANCIAL INFORMATION BY SEGMENT(in thousands)(unaudited) Three Months Six Months Ended June 30, Ended June 30,Operating Revenue2023 2022 2023 2022Intermodal and Transportation Solutions$614,632 $875,150 $1,323,881 $1,651,720 Logistics 453,549 548,613 922,690 1,089,597 Inter-segment eliminations (27,719) (22,307) (53,844) (41,738)Total operating revenue$1,040,462 $1,401,456 $2,192,727 $2,699,579 Three Months Six Months Ended June 30, Ended June 30,Operating Income2023 2022 2023 2022Intermodal and Transportation Solutions$31,777 $100,601 $80,981 $186,297 Logistics 30,293 37,035 59,294 66,399 Total operating income$62,070 $137,636 $140,275 $252,696 Three Months Six Months Ended June 30, Ended June 30,Depreciation and Amortization2023 2022 2023 2022Intermodal and Transportation Solutions$27,117 $25,383 $54,003 $49,758 Logistics 8,269 6,861 16,832 13,775 Total depreciation and amortization$35,386 $32,244 $70,835 $63,533

RECONCILIATION OF NET INCOME TO EBITDA (1)(in thousands)(unaudited) Three Months Six Months Ended June 30, Ended June 30, 2023 2022 2023 2022 Net Income$46,505 $102,846 $108,285 $190,349 Interest Expense, net 1,029 1,402 2,623 3,101 Depreciation and Amortization 45,664 36,729 91,474 71,922 Provision for Income Taxes 14,605 33,193 29,475 59,183 EBITDA$107,803 $174,170 $231,857 $324,555

(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.

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