Hub Group, Inc. Reports Second Quarter 2020 Results

Highlights:

Improving freight volumes as the quarter progressed, coupled with revenue enhancement and profit improvement initiatives, as well as strong cost performance, resulted in net income of $13.2 million or $0.39 of diluted earnings per share in the quarter; EBITDA (non-GAAP)⁽¹⁾ for the quarter was $52 million; net income includes $7.0 million, or $0.21 per share, of donation, consulting and severance expenses
Resilient operating model resulted in Net Cash provided by Operating Activities of $71 million for the quarter, with solid liquidity at quarter end including $203 million in cash and cash equivalents after repayment of $100 million on revolving credit facility
Increased planned 2020 container purchases to 3,500 and recently ordered over 200 tractors to support growth in the business and refresh our fleet
Continued to provide world-class service levels and innovative solutions to our customers; Hub was recognized by Inbound Logistics as the #2 3PL Provider for 2020
Donated nearly $6 million of Hub equipment to support COVID-19 emergency responders

OAK BROOK, Ill., July 30, 2020 (GLOBE NEWSWIRE) -- Hub Group, Inc. (NASDAQ:HUBG) announced second quarter 2020 net income of $13.2 million, or diluted earnings per share of $0.39. Included in net income was $7.0 million, or $0.21 per share, of donation expense ($4.2 million), consulting expense ($1.9 million) and severance expense ($0.9 million). Net income for second quarter 2019 was $29.2 million, or $0.87 per diluted share.

Update on Recent Performance

“Business conditions at the beginning of the second quarter were quite challenging, with a portion of our customer base either completely closed or significantly impacted by the COVID-19 pandemic. We were pleased to see business conditions improve throughout the quarter, with nearly all of our customers resuming their shipping activity by the end of the quarter. We anticipate continued growth in our business during the second half of 2020 and have decided to add 3,500 containers as well as purchase over 200 tractors this year to refresh our fleet and reduce our operating costs. We have continued to maintain our focus on providing a world-class customer experience while protecting the health and safety of our employees. We are honored to have received several recent industry awards, including the #2 ranking on Inbound Logistics’ Top 10 3PL list for 2020. This is a testament to our team’s success in delivering the industry’s premiere customer-centric supply chain solutions to the marketplace,” said Dave Yeager, Hub Group’s Chairman and Chief Executive Officer.

“Our operating model and focus on cost control resulted in EBITDA (non-GAAP)¹ of $52 million for the quarter. We continue to execute on our profit improvement initiatives, and we remain on track to realize $40 million of annualized savings in 2020. Finally, as we discussed last quarter, we are proud to have been able to support COVID-19 emergency responders by donating nearly $6 million of equipment during the quarter,” continued Mr. Yeager.

Q2 2020 Results

Revenue for the second quarter of 2020 decreased by 15% to $779 million compared with $921 million for second quarter 2019. Operating income for the quarter was $21 million versus $41 million for second quarter 2019. Second quarter 2020 operating income included $9.6 million of expenses for donations, consulting and severance.

Second quarter intermodal revenue decreased 15% to $461 million due primarily to an 8% decline in volume. Volume was down compared to the prior year due to a soft demand environment and increased truckload and intermodal competition. Intermodal gross margin decreased compared to the prior year primarily due to the decline in volume, lower prices, unfavorable mix and rail cost increases, partially offset by the benefits from operational improvements in our trucking operation.

Second quarter logistics gross margin as a percentage of revenue expanded by 190 basis points due to our continuous improvement initiatives, higher margin new business, and growth at CaseStack. Revenue for the quarter declined 15% to $164 million as a result of the soft demand environment, partially offset by growth at CaseStack.

Truck brokerage handled 12% fewer loads in the quarter as compared to the prior year, while revenue declined 19% to $87 million. Contractual revenue represented 76% of total brokerage revenue in both second quarter 2020 and 2019. Truck brokerage gross margin as a percent of revenue increased by 100 basis points as a result of the benefits from the transformation of our operating model, an enhanced technology platform and a deeper engagement with our carrier network.

Dedicated revenue decreased 12% to $68 million compared to the prior year due to the impact of business we exited, partially offset by growth with new accounts. Dedicated gross margin as a percent of revenue increased by 200 basis points compared to the prior year due to our profit improvement initiatives.

Costs and expenses decreased to $86 million in the second quarter of 2020 compared to $92 million in the prior year due primarily to a decline in Salaries and Benefits expense, partially offset by an increase in donation expense, consulting expense, and depreciation and amortization expense related to our technology initiatives. Costs and expenses included $5.7 million related to donations of Hub equipment in support of COVID-19 emergency efforts, $2.6 million of consulting expense and $1.3 million of severance expense. The consulting engagement is now complete.

Cash Flow and Capitalization

Net cash provided by operating activities was $71 million for the quarter. Capital expenditures for the second quarter of 2020 totaled $24 million, primarily for containers, technology investments and construction of our new office building on our Oak Brook, IL campus which has now been paused. Near the end of the quarter we repaid the $100 million that we borrowed on our revolving line of credit in March 2020. At June 30, 2020, we had cash and cash equivalents of $203 million.

2020 Capital Expenditure Outlook

Capital expenditures for the remainder of fiscal year 2020 are expected to range from $65 million to $75 million, and primarily consist of investments to support growth in the business, including containers, tractors and trailers, as well as IT hardware and software. We expect to add 3,500 containers in 2020, and take delivery of over 200 tractors to refresh our fleet, which is expected to result in lower operating costs and improved utilization.

Non-GAAP Financial Measure

In this press release, we present EBITDA, a non-GAAP financial measure 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 the non-GAAP financial measure contained in this press release to 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 will hold a conference call at 5:00 p.m. Eastern Time on July 30, 2020 to discuss its second quarter 2020 results.

Hosting the conference call will be Dave Yeager, Chief Executive Officer. Also participating on the call will be Phil Yeager, President and 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 register at http://www.yourconferencecenter.com/r.aspx?p=1&a=UQuEvKbXDHHUxb.

Registrants will be issued a passcode and PIN to use when dialing into the live call which will provide quickest access to the conference. You may register at any time, including up to and after the call start time. On the day of the call, dial (888) 206-4064 approximately ten minutes prior to the scheduled call time; enter the participant passcode and 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 may express or imply projections of revenues or expenditures, statements of plans and objectives or future operations or statements of future economic performance. Forward-looking statements are inherently uncertain and subject to risks, uncertainties and other factors that might cause the actual performance of Hub Group, Inc. to differ materially from those expressed or implied by this discussion and, therefore, should be viewed with caution. All forward-looking statements and information are provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. Forward-looking statements generally may be identified by the use of forward-looking terminology such as “trends”, “assumptions”, “target”, “guidance”, “outlook”, “opportunity”, “future”, “plans”, “goals”, “objectives”, “expects”, “anticipate”, “expected”, “may”, “will”, “would”, “could”, “intend”, “believe”, “potential”, “projected”, “estimate” (or the negative or derivative of each of these terms), or similar words, and include our statements regarding our profit improvement initiatives and capital expenditures. These forward-looking statements are based on management's experience and perception of trends, current conditions, and anticipated future developments, as well as other factors believed to be appropriate. We believe these statements and the assumptions and estimates contained in this release are reasonable based on information that is currently available to us. Factors that could cause actual results to differ materially include general or regional economic conditions and health concerns; the effect of the COVID-19 pandemic, including on our business operations, as well as its impact on general economic and financial market conditions and on our customers, counterparties, employees, and third-party service providers; our ability to sustain or the effects of plans intended to improve operation execution and performance; changes in or implementation of additional governmental or regulatory rules and interpretations affecting tax, wage and hour matters, health and safety, insurance or other undeterminable areas; intermodal costs and prices, the integration of any acquisitions and expenses relating thereto; the future performance of Hub’s Intermodal, Truck Brokerage, Dedicated and Logistics business lines; driver shortages; the amount and timing of strategic investments or divestitures by Hub, the failure to implement and integrate critical information technology systems; cyber security incidents, retail and other customers encountering adverse economic conditions and other factors described from time to time in Hub Group's SEC reports, press releases and other communications. Hub Group assumes no liability to update any such forward-looking statements.

¹ For all non-GAAP measures presented, please see “Non-GAAP Financial Measure” and the reconciliations included in this press release.

SOURCE: Hub Group, Inc.



HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)

			Three Months Ended June 30,
				2020					2019
						% of					% of
			Amount			Revenue		Amount			Revenue
Revenue			$	779,243		100.0	%	$	921,163		100.0	%

Transportation costs				671,994		86.2	%		788,460		85.6	%
	Gross margin			107,249		13.8	%		132,703		14.4	%

Costs and expenses:
	Salaries and benefits			49,676		6.4	%		60,859		6.6	%
	General and administrative			28,970		3.7	%		24,028		2.6	%
	Depreciation and amortization			7,625		1.0	%		7,095		0.8	%
		Total costs and expenses		86,271		11.1	%		91,982		10.0	%

Operating income				20,978		2.7	%		40,721		4.4	%

Other income (expense):
	Interest expense			(3,006	)	-0.4	%		(2,690	)	-0.3	%
	Other, net			47		0.0	%		565		0.1	%
		Total other expense		(2,959	)	-0.4	%		(2,125	)	-0.2	%

Income before provision for income taxes				18,019		2.3	%		38,596		4.2	%

Provision for income taxes				4,865		0.6	%		9,379		1.0	%

Net income			$	13,154				$	29,217

Earnings per share
	Basic		$	0.40				$	0.87
	Diluted		$	0.39				$	0.87

Basic weighted average number of shares outstanding				33,171					33,552
Diluted weighted average number of shares outstanding				33,455					33,715


HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)

			Six Months Ended June 30,
				2020					2019
						% of					% of
			Amount			Revenue		Amount			Revenue
Revenue			$	1,618,102		100.0	%	$	1,854,161		100.0	%

Transportation costs				1,406,259		86.9	%		1,594,169		86.0	%
	Gross margin			211,843		13.1	%		259,992		14.0	%

Costs and expenses:
	Salaries and benefits			100,552		6.2	%		122,887		6.6	%
	General and administrative			55,306		3.4	%		46,946		2.5	%
	Depreciation and amortization			15,248		1.0	%		13,849		0.7	%
		Total costs and expenses		171,106		10.6	%		183,682		9.9	%

Operating income				40,737		2.5	%		76,310		4.1	%

Other income (expense):
	Interest expense			(5,461	)	-0.3	%		(5,746	)	-0.3	%
	Other, net			228		0.0	%		898		0.1	%
		Total other expense		(5,233	)	-0.3	%		(4,848	)	-0.2	%

Income before provision for income taxes				35,504		2.2	%		71,462		3.9	%

Provision for income taxes				9,114		0.6	%		18,351		1.0	%

Net income			$	26,390				$	53,111

Earnings per share
	Basic		$	0.80				$	1.58
	Diluted		$	0.79				$	1.58

Basic weighted average number of shares outstanding				33,165					33,560
Diluted weighted average number of shares outstanding				33,472					33,650


HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

					June 30,			December 31,
						2020			2019

ASSETS
	CURRENT ASSETS:
		Cash and cash equivalents			$	203,173		$	168,729
		Accounts receivable trade				456,619			450,451
		Allowance for uncollectible trade accounts				(8,500	)		(6,912	)
		Accounts receivable other				1,028			3,237
		Prepaid taxes				708			630
		Prepaid expenses and other current assets				13,682			24,086
				TOTAL CURRENT ASSETS		666,710			640,221

	Restricted investments					20,961			22,601
	Property and equipment, net					650,990			663,165
	Right-of-use assets - operating leases					35,889			35,548
	Right-of-use assets - financing leases					4,704			5,865
	Other intangibles, net					114,128			120,967
	Goodwill, net					484,350			484,459
	Other assets					21,445			18,748
				TOTAL ASSETS	$	1,999,177		$	1,991,574


LIABILITIES AND STOCKHOLDERS' EQUITY
	CURRENT LIABILITIES:
		Accounts payable trade			$	257,752		$	257,247
		Accounts payable other				16,049			11,585
		Accrued payroll				29,835			45,540
		Accrued other				89,696			86,686
		Lease liability - operating leases				8,760			8,567
		Lease liability - financing leases				3,061			3,048
		Current portion of long term debt				90,948			94,691
				TOTAL CURRENT LIABILITIES		496,101			507,364

	Long term debt					167,857			186,934
	Non-current liabilities					41,424			36,355
	Lease liability - operating leases					28,662			28,518
	Lease liability - financing leases					278			1,820
	Deferred taxes					159,018			155,304

	STOCKHOLDERS' EQUITY:
		Preferred stock, $.01 par value; 2,000,000 shares authorized;
			no shares issued or outstanding in 2020 and 2019			-			-
		Common stock
			Class A: $.01 par value; 97,337,700 shares authorized and
				41,224,792 shares issued in 2020 and 2019; 33,518,154 shares
				outstanding in 2020 and 33,353,904 shares outstanding in 2019		412			412
			Class B: $.01 par value; 662,300 shares authorized;
				662,296 shares issued and outstanding in 2020 and 2019		7			7
		Additional paid-in capital				178,914			179,637
		Purchase price in excess of predecessor basis, net of tax
		benefit of $10,306				(15,458	)		(15,458	)
		Retained earnings				1,205,991			1,179,601
		Accumulated other comprehensive loss				(283	)		(186	)
		Treasury stock; at cost, 7,706,638 shares in 2020
			and 7,870,888 shares in 2019			(263,746	)		(268,734	)
			TOTAL STOCKHOLDERS' EQUITY			1,105,837			1,075,279
				TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,999,177		$	1,991,574


HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

					Six Months Ended June 30,
						2020			2019


Cash flows from operating activities:
	Net income				$	26,390		$	53,111
	Adjustments to reconcile net income
		to net cash provided by operating activities:
			Depreciation and amortization			61,759			57,029
			Deferred taxes			4,989			4,272
			Compensation expense related to share-based compensation plans			8,209			8,687
			Loss (gain) on sale of assets			96			(1,526	)
			Donated equipment			5,626			-
	Changes in operating assets and liabilities:
			Restricted investments			1,640			(2,736	)
			Accounts receivable, net			(2,392	)		55,089
			Prepaid taxes			(83	)		(422	)
			Prepaid expenses and other current assets			10,350			15,932
			Other assets			(637	)		(2,349	)
			Accounts payable			4,989			(38,391	)
			Accrued expenses			(9,440	)		(14,620	)
			Non-current liabilities			21			1,187
				Net cash provided by operating activities		111,517			135,263

Cash flows from investing activities:
	Proceeds from sale of equipment					521			7,664
	Purchases of property and equipment					(49,271	)		(28,712	)
	Proceeds from the disposition of discontinued operations					-			19,439
	Acquisition, net of cash acquired					-			(734	)
				Net cash used in investing activities		(48,750	)		(2,343	)

Cash flows from financing activities:
	Purchase of treasury stock					-			(7,282	)
	Proceeds from issuance of debt					127,462			18,335
	Repayments of long term debt					(150,282	)		(51,324	)
	Stock withheld for payments of withholding taxes					(3,944	)		(2,746	)
	Finance lease payments					(1,493	)		(1,465	)
				Net cash used in financing activities		(28,257	)		(44,482	)


	Effect of exchange rate changes on cash and cash equivalents					(66	)		(10	)

Net increase in cash and cash equivalents						34,444			88,428
Cash and cash equivalents beginning of period						168,729			61,435
Cash and cash equivalents end of period					$	203,173		$	149,863


HUB GROUP, INC.
FINANCIAL INFORMATION BY BUSINESS LINE
(in thousands)
(unaudited)

	Three Months				Six Months
	Ended June 30,				Ended June 30,

		2020		2019		2020		2019

Intermodal	$	460,676	$	542,890	$	955,999	$	1,078,923

Logistics		163,743		193,463		346,999		396,725

Truck brokerage		86,675		107,081		184,692		224,669

Dedicated		68,149		77,729		130,412		153,844

Total Revenue	$	779,243	$	921,163	$	1,618,102	$	1,854,161

RECONCILIATION OF NET INCOME TO EBITDA
(in thousands)
(unaudited)

	Three Months
	Ended June 30,
							Change			Change
		2020			2019		$			%

Net income	$	13,154		$	29,217		$	(16,063	)	-55.0	%

Interest expense		3,006			2,690			316		11.7	%

Other, net		(47	)		(565	)		518		-91.7	%

Depreciation and amortization		31,183			28,646			2,537		8.9	%

Provision for income taxes		4,865			9,379			(4,514	)	-48.1	%

EBITDA	$	52,161		$	69,367		$	(17,206	)	-24.8	%


RECONCILIATION OF NET INCOME TO EBITDA
(in thousands)
(unaudited)

	Six Months
	Ended June 30,
							Change			Change
		2020			2019		$			%

Net income	$	26,390		$	53,111		$	(26,721	)	-50.3	%

Interest expense		5,461			5,746			(285	)	-5.0	%

Other, net		(228	)		(898	)		670		-74.6	%

Depreciation and amortization		61,759			57,029			4,730		8.3	%

Provision for income taxes		9,114			18,351			(9,237	)	-50.3	%

EBITDA	$	102,496		$	133,339		$	(30,843	)	-23.1	%

Hub Group, Inc. Reports Second Quarter 2020 Results

Coordonnées