Hub Group, Inc. Reports Third Quarter 2019 Results

10/30/19

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. (NASDAQ: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'sSEC 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

Source: Hub Group, Inc.

Press Releases

Hub Group, Inc. Reports Third Quarter 2019 Results