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Hub Group, Inc. Reports Third Quarter 2019 Results

Highlights of the quarter

  • Earnings per share of $0.78 includes a reduction of $0.19 per share for legal settlements and consulting costs.  Non-GAAP adjusted earnings per share is $0.97 excluding these costs.  
  • Operating margin is 4.1% and includes $8.5 million of legal settlements and consulting costs. Non-GAAP adjusted operating margin excluding these costs is 5.0%.
  • Net income was $26.1 million.  EBITDA increased 21% to $66.9 million

OAK BROOK, Ill., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Hub Group, Inc. (HUBG) announced third quarter 2019 net income of $26.1 million, or diluted earnings per share of $0.78. Results were negatively impacted by $8.5 million of pretax costs, or $0.19 per share, which are comprised of $4.8 million for settlement of claims first made in 2013 for alleged misclassification of drivers (in general and administrative expenses), $3.0 million for settlement of a 2016 auto liability claim (in transportation costs) and $0.7 million for consulting costs (in general and administrative expense).  Excluding these costs, adjusted earnings per share is $0.97.  Income from continuing operations for the third quarter 2018 was $25.8 million, or $0.77 per diluted share. 

Update on Profit Improvement Initiatives

“We have been focused on executing our strategy, key tenets of which include delivering a best-in-class experience for both our customers and employees, diversifying our service offerings and investing in technology while increasing profitability and our return on invested capital. We’ve improved profitability through operational enhancements, revenue management, and procurement savings in transportation and general and administrative costs. These initiatives have driven our adjusted operating margin to our goal of 5.0% in the third quarter, and more importantly, position Hub for success,” said Dave Yeager, Hub’s Chairman and Chief Executive Officer.

Based on actions taken through the third quarter, the profit improvement initiatives identified above are projected to provide over $60 million of run-rate savings.  These actions include a 9% reduction in non-driver headcount since year-end 2018, reductions in purchased transportation costs, savings related to improved driver and tractor utilization in our drayage operation, investments in efficiency enhancing technologies and profitability improvements at Dedicated.  We expect an additional $40 million of annualized savings based on actions we anticipate taking over the next year.

We continue to invest in technology and anticipate that by mid-2021 we will have fully implemented our Elevate technology program across all business lines.  This program is expected to result in additional operating savings and profitability of over $20 million in 2022, while also fueling our growth as customers will benefit from our enhanced capabilities and freight visibility.

Results of Continuing Operations

Revenue for the current quarter decreased by 2% to $913 million compared with $933 million for the third quarter 2018 as a result of a soft freight market, partially offset by our success in providing multimodal solutions to our customers.  Operating income for the current quarter includes $8.5 million of legal settlements and consulting costs.  Operating income for the current quarter increased 7% to $37.2 million versus $34.7 million for the third quarter 2018, primarily as a result of improved yield management, our diversified model and our intense focus on profit improvement initiatives while maintaining the highest levels of service.  Adjusted operating income excluding the $8.5 million of costs was $45.7 million and increased 32%.

Third quarter intermodal revenue decreased 7% to $539 million due primarily to a 9% decline in volume. Volume was down compared to the prior year due to a soft demand environment, increased truckload and intermodal competition, and a 1% volume decrease from lane cancellations.  Intermodal gross margin decreased compared to the third quarter of 2018 primarily due to the decline in volumes, the $3.0 million 2016 auto liability settlement, and rail cost increases, partially offset by the benefits from revenue management, operational improvements, network balance, and better purchasing.

Truck brokerage revenue decreased 10% to $110 million in the third quarter of 2019 compared to the same quarter of last year.  Truck brokerage handled 14% more loads while fuel, price and mix combined were down 24% due primarily to the addition of the CaseStack LTL brokerage business.  Contractual truckload volume represented 91% of total truckload volume compared to 78% in the third quarter of 2018.  Truck brokerage gross margin increased due to a higher load count, further benefits from our new operating model and yield management strategy, as well as our new technology platform.    

Third quarter logistics revenue grew 27% to $189 million.  Revenue and gross margin expanded due to the addition of CaseStack, benefits from continuous improvements, revenue management, new service lines and cross selling to our customers.   

Dedicated revenue decreased 5% to $75 million compared to the same quarter in the prior year due to the impact of lost business, partially offset by growth with new accounts.  Dedicated gross margin improved compared to the third quarter of 2018 due to revenue management initiatives and improved operational discipline.  We ended the quarter with approximately 1,300 tractors and 5,200 trailers for Dedicated. 

Costs and expenses increased to $98 million in the third quarter of 2019 compared to $80 million in the third quarter of 2018 due primarily to costs and expenses of $12.9 million related to CaseStack (which includes $2.3 million of non-cash amortization expense), $4.8 million related to settlement of claims first made in 2013 for alleged misclassification of drivers, $1.5 million of higher technology expenses, $1.6 million lower gain on sale of equipment, the $1.1 million contingent consideration adjustment for Dedicated in 2018 and $0.7 million for a consulting project, partially offset by a decrease of $5.1 million in compensation expense. Costs and expenses include a total of $3.4 million of non-cash amortization expense related to CaseStack and Hub Group Dedicated and $0.6 million of compensation expense associated with restricted stock issued to CaseStack management in connection with the acquisition.

Results of Discontinued Operations

Income from discontinued operations related to the sale of our Mode segment for the third quarter of 2018 was $88.8 million, or $2.64 per diluted share. 

Cash Flow and Capitalization

Our capital expenditures for the third quarter 2019 totaled $27 million, primarily for tractors and technology investments.  At September 30, 2019, we had cash and cash equivalents of $89.6 million.    

2019 Outlook

We expect that our fourth quarter 2019 diluted earnings per share will range from $0.81 to $0.85, resulting in an expected 2019 adjusted earnings per share range from $3.36 to $3.40. We estimate flat revenue growth for the full year. We expect gross margin as a percentage of sales to range from 13.9% to 14.2% in the fourth quarter. We estimate our costs and expenses will range from $89 million to $91 million in the fourth quarter.  We expect annual amortization expense associated with the CaseStack and Hub Group Dedicated acquisitions will be approximately $13.6 million and compensation expense related to restricted stock issued to CaseStack management in connection with the acquisition will be approximately $2.5 million in 2019. We project our effective tax rate for 2019 will range from 25% to 26%.  We forecast we will spend between $90 million and $95 million on capital expenditures in 2019.

Non-GAAP Financial Measure

As required by the rules of the Securities and Exchange Commission (“SEC”), we provide a reconciliation of the non-GAAP financial measure contained in this press release to the most directly comparable measure under GAAP, which is set forth in the attached tables. Management believes that EBITDA provides relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by our management.  We adjusted GAAP earnings per share and operating margin to exclude the effect of unusually high costs for legal settlements and a consulting project that is non-recurring. We excluded the items we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company’s profitability measures for the periods presented.   

CONFERENCE CALL

Hub will hold a conference call at 5:00 p.m. Eastern Time on October 30, 2019 to discuss its third quarter 2019 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 Terri Pizzuto, Executive Vice President and Chief Financial Officer.

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?]=1&a=UjvLetfIjInEoB. 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, including statements about Hub Group's or management's earnings guidance, intentions, beliefs, expectations, representations, projections, plans or predictions of the future, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and subject to risks, and should be viewed with caution. Forward-looking statements may contain words such as “expects”, “expected”, “believe”, “projected”, “estimate”, or similar words, and are based on management's experience and perception of historical 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. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Factors that could cause actual results to differ materially include 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 customers encountering adverse economic conditions and the factors listed from time to time in Hub Group's SEC reports including, but not limited to, the annual report on Form 10-K for the year ended December 31, 2018.  Hub Group assumes no liability to update any such forward-looking statements.

 
 
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)
                       
              Three Months Ended September 30,  
              2019   2018
                % of     % of
              Amount Revenue   Amount Revenue
Revenue       $ 913,275   100.0 %   $ 933,224   100.0 %
                       
Transportation costs         778,057   85.2 %     818,240   87.7 %
  Gross margin         135,218   14.8 %     114,984   12.3 %
                       
Costs and expenses:                
  Salaries and benefits         59,765   6.5 %     57,123   6.1 %
  General and administrative       30,906   3.4 %     19,327   2.1 %
  Depreciation and amortization       7,301   0.8 %     3,800   0.4 %
    Total costs and expenses       97,972   10.7 %     80,250   8.6 %
                       
Operating income         37,246   4.1 %     34,734   3.7 %
                       
Other income (expense):                
  Interest expense         (2,780 ) -0.3 %     (2,411 ) -0.2 %
  Interest and dividend income       613   0.1 %     340   0.0 %
  Other, net         56   0.0 %     251   0.0 %
    Total other expense         (2,111 ) -0.2 %     (1,820 ) -0.2 %
                       
Income from continuing operations before income taxes   35,135   3.9 %     32,914   3.5 %
                       
Provision for income taxes       9,030   1.0 %     7,150   0.7 %
                       
Income from continuing operations       26,105   2.9 %     25,764   2.8 %
                       
Income from discontinued operations, net of income taxes   -         88,846    
                       
Net income       $ 26,105       $ 114,610    
                       
Earnings per share from continuing operations              
  Basic       $ 0.79       $ 0.77    
  Diluted       $ 0.78       $ 0.77    
                       
Earnings per share from discontinued operations              
  Basic       $ -       $ 2.66    
  Diluted       $ -       $ 2.64    
                       
Earnings per share net income              
  Basic       $ 0.79       $ 3.43    
  Diluted       $ 0.78       $ 3.41    
                       
Basic weighted average number of shares outstanding   33,034         33,399    
Diluted weighted average number of shares outstanding   33,265         33,605    


 
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)
                       
              Nine Months Ended September 30,
              2019   2018
                % of     % of
              Amount Revenue   Amount Revenue
Revenue       $ 2,767,436   100.0 %   $ 2,665,300   100.0 %
                       
Transportation costs         2,372,226   85.7 %     2,358,286   88.5 %
  Gross margin         395,210   14.3 %     307,014   11.5 %
                       
Costs and expenses:                
  Salaries and benefits         182,652   6.6 %     163,496   6.1 %
  General and administrative         77,852   2.8 %     55,557   2.1 %
  Depreciation and amortization       21,150   0.8 %     11,286   0.4 %
    Total costs and expenses       281,654   10.2 %     230,339   8.6 %
                       
Operating income         113,556   4.1 %     76,675   2.9 %
                       
Other income (expense):                
  Interest expense         (8,526 ) -0.3 %     (6,702 ) -0.3 %
  Interest and dividend income       1,581   0.1 %     365   0.0 %
  Other, net         (14 ) 0.0 %     20   0.0 %
    Total other expense         (6,959 ) -0.2 %     (6,317 ) -0.3 %
                       
Income from continuing operations before income taxes       106,597   3.9 %     70,358   2.6 %
                       
Provision for income taxes         27,381   1.0 %     16,371   0.6 %
                       
Income from continuing operations       79,216   2.9 %     53,987   2.0 %
                       
Income from discontinued operations, net of income taxes     -         98,842    
                       
Net income       $ 79,216       $ 152,829    
                       
Earnings per share from continuing operations              
  Basic       $ 2.37       $ 1.62    
  Diluted       $ 2.36       $ 1.61    
                       
Earnings per share from discontinued operations              
  Basic       $ -       $ 2.96    
  Diluted       $ -       $ 2.95    
                       
Earnings per share net income              
  Basic       $ 2.37       $ 4.58    
  Diluted       $ 2.36       $ 4.56    
                       
Basic weighted average number of shares outstanding       33,385         33,387    
Diluted weighted average number of shares outstanding       33,522         33,548    


 
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
                     
                September 30,   December 31,
                  2019       2018  
ASSETS              
  CURRENT ASSETS:          
    Cash and cash equivalents   $ 89,628     $ 61,435  
    Accounts receivable trade, net     434,552       477,088  
    Other receivables       3,945       22,021  
    Prepaid taxes       5,238       616  
    Prepaid expenses and other current assets   26,234       27,533  
        TOTAL CURRENT ASSETS     559,597       588,693  
                     
  Restricted investments     21,428       19,236  
  Property and equipment, net     657,826       681,859  
  Right-of-use assets - operating leases   37,509       -  
  Right-of-use assets - financing leases   6,432       -  
  Other intangibles, net       124,422       134,788  
  Goodwill, net       484,514       483,584  
  Other assets       18,955       16,738  
        TOTAL ASSETS   $ 1,910,683     $ 1,924,898  
                     
                     
LIABILITIES AND STOCKHOLDERS' EQUITY      
  CURRENT LIABILITIES:          
    Accounts payable trade   $ 180,490     $ 272,859  
    Accounts payable other     13,487       10,906  
    Accrued payroll       46,915       55,535  
    Accrued other       96,575       82,900  
    Lease liability - operating leases     8,665       -  
    Lease liability - financing leases     3,021       2,845  
    Current portion of long term debt     95,772       101,713  
        TOTAL CURRENT LIABILITIES   444,925       526,758  
                     
  Long term debt       192,422       229,071  
  Non-current liabilities       35,011       29,619  
  Lease liability - operating leases     30,444       -  
  Lease liability - financing leases     2,600       4,739  
  Deferred taxes       160,725       153,877  
                     
  STOCKHOLDERS' EQUITY:        
    Preferred stock, $.01 par value; 2,000,000 shares authorized;      
      no shares issued or outstanding in 2019 and 2018   -       -  
    Common stock          
      Class A: $.01 par value; 97,337,700 shares authorized and      
        41,224,792 shares issued in 2019 and 2018; 33,375,328 shares      
        outstanding in 2019 and 33,793,709 shares outstanding in 2018   412       412  
      Class B:  $.01 par value; 662,300 shares authorized;      
        662,296 shares issued and outstanding in 2019 and 2018   7       7  
    Additional paid-in capital     175,749       172,220  
    Purchase price in excess of predecessor basis, net of tax      
    benefit of $10,306       (15,458 )     (15,458 )
    Retained earnings       1,151,646       1,072,456  
    Accumulated other comprehensive loss   (211 )     (182 )
    Treasury stock; at cost, 7,849,464 shares in 2019      
      and 7,431,083 shares in 2018     (267,589 )     (248,621 )
      TOTAL STOCKHOLDERS' EQUITY   1,044,556       980,834  
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,910,683     $ 1,924,898  


 
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                   
                  Nine Months Ended September 30,
                    2019       2018  
                       
                       
Cash flows from operating activities:          
  Net income       $ 79,216     $ 152,829  
  Adjustments to reconcile net income        
    to net cash provided by operating activities:        
      Depreciation and amortization       86,719       59,184  
      Deferred taxes         7,145       33,989  
      Compensation expense related to share-based compensation plans     12,434       9,490  
      Contingent consideration adjustment     -       (4,703 )
      Gain on sale of assets       (1,313 )     (1,458 )
      Gain on disposition       -       (113,601 )
  Changes in operating assets and liabilities:        
      Restricted investments       (2,192 )     (2,454 )
      Accounts receivable, net       41,000       (44,138 )
      Prepaid taxes         (4,622 )     11,918  
      Prepaid expenses and other current assets     1,299       438  
      Other assets         (3,365 )     1,572  
      Accounts payable       (89,800 )     8,070  
      Accrued expenses       2,408       30,952  
      Non-current liabilities       (225 )     4,358  
      Transaction costs for disposition     -       (5,665 )
        Net cash provided by operating activities     128,704       140,781  
                       
Cash flows from investing activities:          
  Proceeds from sale of equipment       9,072       4,035  
  Purchases of property and equipment     (55,616 )     (138,847 )
  Proceeds from the disposition of discontinued operations     19,439       227,986  
  Cash used in acquisitions       (734 )     -  
        Net cash (used in) provided by investing activities     (27,839 )     93,174  
                       
Cash flows from financing activities:          
  Purchase of treasury stock       (24,998 )     -  
  Proceeds from issuance of debt       36,557       118,809  
  Repayments of long term debt       (79,147 )     (107,341 )
  Stock tendered for payments of withholding taxes     (2,875 )     (4,262 )
  Finance lease payments       (2,206 )     (2,181 )
        Net cash (used in) provided by financing activities     (72,669 )     5,025  
                       
                       
  Effect of exchange rate changes on cash and cash equivalents     (3 )     (30 )
                       
Net increase in cash and cash equivalents     28,193       238,950  
Cash and cash equivalents beginning of period     61,435       28,557  
Cash and cash equivalents end of period   $ 89,628     $ 267,507  


 
HUB GROUP, INC.
FINANCIAL INFORMATION BY BUSINESS LINE
(in thousands)
(unaudited)
                     
        Three Months   Nine Months
        Ended September 30,   Ended September 30,
          2019     2018     2019     2018
Intermodal     $ 539,484   $ 582,878   $ 1,618,407   $ 1,615,453
Truck brokerage       109,543     122,059     334,211     357,013
Logistics       189,470     149,642     586,196     479,940
Dedicated       74,778     78,645     228,622     212,894
  Total Revenue   $ 913,275   $ 933,224   $ 2,767,436   $ 2,665,300


   
HUB GROUP, INC.   
UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA  
(in thousands)  
(unaudited)  
                 
  Three Months        
  Ended, September 30,      
          Change   Change  
  2019   2018   $   %  
                 
Net income from continuing operations $   26,105     $   25,764     $   341     1.3 %  
                 
Interest expense     2,780         2,411         369     15.3 %  
                 
Interest and dividend income     (613 )       (340 )       (273 )   80.3 %  
                 
Other income, net     (56 )       (251 )       195     -77.7 %  
                 
Depreciation and amortization     29,690         20,780         8,910     42.9 %  
                 
Provision for income taxes     9,030         7,150         1,880     26.3 %  
                 
EBITDA $   66,936     $   55,514     $   11,422     20.6 %  


                 
HUB GROUP, INC.         
UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA      
(in thousands)         
(unaudited)         
                 
  Nine Months        
  Ended, September 30,      
          Change   Change  
    2019       2018     $   %  
                 
Net income from continuing operations $   79,216     $   53,987     $   25,229     46.7 %  
                 
Interest expense     8,526         6,702         1,824     27.2 %  
                 
Interest and dividend income     (1,581 )       (365 )       (1,216 )   333.2 %  
                 
Other income, net     14         (20 )       34     -170.0 %  
                 
Depreciation and amortization     86,719         58,552         28,167     48.1 %  
                 
Provision for income taxes     27,381         16,371         11,010     67.3 %  
                 
EBITDA $   200,275     $   135,227     $   65,048     48.1 %  


           
HUB GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(unaudited)
                 
              Three Months Ended
              September 30, 2019
                 
                % of
              Amount Revenue
Revenue       $   913,275   100.0 %
                 
Transportation costs           778,057   85.2 %
  Settlement of 2016 auto claim liability         (3,000 ) -0.3 %
Adjusted transportation costs         775,057   84.9 %
                 
  Adjusted gross margin           138,218   15.1 %
                 
Costs and expenses:          
  Salaries and benefits           59,765   6.5 %
                 
  General and administrative         30,906   3.4 %
    Settlement of claims for alleged misclassification of drivers     (4,750 ) -0.5 %
    Consulting project           (700 ) -0.1 %
  Adjusted general and administrative         25,456   2.8 %
                 
  Depreciation and amortization         7,301   0.8 %
                 
    Adjusted total costs and expenses         92,522   10.1 %
                 
Adjusted operating income         45,696   5.0 %
                 
Other income (expense):          
  Interest expense           (2,780 ) -0.3 %
  Interest and dividend income         613   0.1 %
  Other, net           56   0.0 %
    Total other expense           (2,111 ) -0.2 %
                 
Adjusted income before income taxes         43,585   4.8 %
                 
Adjusted provision for income taxes         11,201   1.2 %
                 
Adjusted net income       $   32,384    
                 
Adjusted earnings per share
       
  Basic       $   0.98    
  Diluted       $   0.97    
                 
Basic weighted average number of shares outstanding       33,034    
Diluted weighted average number of shares outstanding       33,265    
           

CONTACT: Maralee Volchko of Hub Group, Inc., +1-630-271-3745