UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-27754
HUB GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2000 Clearwater Drive
Oak Brook, IL
(Address of principal executive offices)
36-4007085
(I.R.S. Employer
Identification No.)
60523
(Zip Code)
Registrant’s telephone number, including area code: (630) 271-3600
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $0.01 per share
Title of each class
Trading
Symbol(s)
HUBG
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
NASDAQ
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
☒
☐
Emerging growth company
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the Registrant’s voting stock held by non-affiliates on June 30, 2021, based upon the last reported sale price on that date on the NASDAQ Global Select Market of
$65.98 per share, was $2,162,250,176.
On February 18, 2022, the Registrant had 34,029,436 outstanding shares of Class A Common Stock, par value $.01 per share, and 662,296 outstanding shares of Class B Common Stock, par
value $.01 per share.
Documents Incorporated by Reference
The Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022 (the “Proxy Statement”) is incorporated by reference in Part III of this Form 10-K
to the extent stated herein. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof.
PART I
FORWARD LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as
“expects,” “hopes,” “believes,” “intends,” “targets,” “estimates,” “anticipates,” “predicts,” “projects,” “potential,” “may,” “could,” “might,” “should,” and
variations of these words and similar expressions are intended to identify these forward-looking statements. In particular, information appearing under
“Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking
statements. Forward-looking statements are neither historical facts nor assurance of future performance. Instead, they are based on our beliefs, expectations
and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future
conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are
difficult to predict and many of which are outside of our control. Such considerations may include, but are not limited to, uncertainties caused by adverse
economic conditions, geopolitical events, the coronavirus ("COVID-19") pandemic, workforce availability and other extraordinary events or circumstances
that may disrupt our or our customers’ or suppliers’ business and operations.
Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. All forward-looking
statements made by us in this annual report are based upon information available to us on the date of this report and speak only as of the date in which they
are made. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that
may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors that could cause our actual
results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under
Items 1A “Risk Factors,” include the following as they may be affected, either individually, or in the aggregate, by the effect of the ongoing COVID-19
pandemic, including any spikes, outbreaks or variants of the virus, as well as any future government actions taken in response to the pandemic, including
on our business operations, as well as its impact on general economic and financial market conditions and on our customers, suppliers, counterparties,
employees and third-party service providers:
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the degree and rate of market growth in the intermodal, logistics, truck brokerage and dedicated markets served by us;
deterioration in our relationships, service conditions or provision of equipment with railroads or adverse changes to the railroads’ operating rules;
inability to recruit and retain company drivers and owner-operators;
inability to hire or retain management and other employees who are critical to our continued success;
the impact of competitive pressures in the marketplace, including entry of new competitors including digital freight matching companies, direct
marketing efforts by the railroads or marketing efforts of asset-based carriers;
unanticipated changes in rail, drayage, warehousing and trucking company capacity or costs of services;
the impact on costs of services, service and reliability of further consolidation of railroads;
increases in costs related to any reclassification or change in our treatment of company drivers, owner-operators or other workers due to regulatory,
judicial and legal decisions, including workers directly contracted with the Company and those contracted to the Company’s vendors;
joint employer claims alleging that the Company is a co-employer of any workers providing services to a Company contractor;
labor unrest or shortages in the rail, drayage, trucking or warehousing sectors;
significant deterioration in our customers’ financial condition, particularly in the retail, consumer products and durable goods sectors;
inability to identify, close and successfully integrate any future business combinations;
fuel shortages or fluctuations in fuel prices;
increases in interest rates;
acts of terrorism, military action or geopolitical events, including events that disrupt the global supply chain;
difficulties in maintaining or enhancing our information technology systems, implementing new systems or protecting against cyber-attacks;
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increases in costs or operating challenges associated with complying with current or new governmental regulations;
significant increases to employee health insurance costs;
loss of one or more of our largest customers;
expected awards during annual customer bids not materializing;
changes in insurance costs, retention amounts and claims expense;
losses sustained on matters where the liability materially exceeds available insurance proceeds, if any;
union organizing efforts and changes to current laws, rules and regulations which will aid in these efforts;
the effects of pandemics;
imposition of new tariffs or trade barriers or withdrawal from or renegotiation of existing free trade agreements which could reduce international
trade and economic activity; and
disruptions due to adverse weather conditions.
Item 1. BUSINESS
General
Hub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading supply chain solutions provider that offers comprehensive transportation
and logistics management services focused on reliability, visibility and value for our customers. Our mission is to continuously elevate each customer’s
business to drive long term success. Our vision is to build the industry’s premier supply chain solutions. Our service offerings include a full range of freight
transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with
whom we contract. Our transportation services include intermodal, truckload, less-than-truckload (“LTL”), flatbed, temperature-controlled, dedicated and
regional trucking. Our logistics services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing
and fulfillment, final mile delivery, parcel and international services.
We are one of the largest freight transportation providers in North America. Hub services a large and diversified customer base in a broad range of
industries, including retail, consumer products and durable goods. We believe our strategy to offer multi-modal supply chain management solutions serves
to strengthen and deepen our relationships with our customers and allows us to provide a more cost effective and higher service solution.
We employ sales and marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering
long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation
services to them. Our top 50 customers represent approximately 61% of revenue for the year ended December 31, 2021 while one customer accounted for
more than 10% of our annual revenue.
Our business is seasonal to the extent that certain customer groups, such as retail, are seasonal. A significant portion of our revenue and earnings is
related to the provision of services to customers who serve consumer end markets in North America. As such our business generally experiences a higher
level of demand during the time leading up to the December holidays, as our customers seek to build their inventories by moving goods into their
distribution centers and retail store locations in the second half of the calendar year.
The transportation and logistics services industry is highly competitive. We compete against intermodal providers, logistics companies, third party
brokers, trucking carriers, transportation management providers, warehousing providers and railroads that market their own services. Competition is based
primarily on freight rates, quality of service, reliability, transit time and scope of operations. Several transportation service companies and trucking
companies, and all of the major railroads, may have substantially greater financial and other resources than we do.
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Our service offering facilitates our customers’ desires for energy-efficient transportation solutions and assists in meeting their objectives to reduce
their environmental footprint. Our intermodal service is significantly more fuel efficient as compared to trucking transportation, and we continually seek
opportunities to convert our customers’ transportation needs from trucking to intermodal. In addition, our logistics offering includes shipment consolidation
and network optimization services that seek to maximize the amount of freight carried per mile which reduces fuel consumption. One of the objectives of
our investment strategy is to replace older model tractors with newer, more energy-efficient equipment. We also evaluate new technologies such as
electric-powered tractors that offer attractive environmental benefits to us and our customers. Our GPS-enabled container fleet allows for our truck drivers
and third party carriers to efficiently locate our containers without driving wasted miles. We are an Environmental Protection Agency (EPA) SmartWay®
Transport Partner, having been awarded the EPA’s SmartWay® Excellence Award nine times since 2008. Our headquarters building in Oak Brook, IL is
certified as “Gold” by the Leadership in Energy and Environmental Design (LEED®) organization. Please see the Investors section of our website
(https://investors.hubgroup.com/) for additional information on our environmental, social and governance attributes.
Our strategy to grow revenue, net income and cash flow includes the following elements:
• Deepen and diversify our customer relationships through a best-in-class customer experience across all of our service offerings;
• Acquire and organically develop new service offerings for our customers that will diversify our revenue streams and deliver sophisticated supply
chain logistics solutions;
• Selectively invest in assets, such as containers and tractors, to drive organic growth and reduce our costs;
• Build an industry leading information technology platform to drive growth and efficiency and support future innovations; and
• Sustain a culture that continues to enable innovation, service and teamwork.
We are committed to investing in technology to facilitate the growth of our business while enabling efficiency in our operations. Our digital strategy
leverages advanced technology for our core operating systems, while investing in emerging technologies to achieve our business goals and enable
innovative solutions for our stakeholders which include customers, drivers, vendors and employees. For example, in 2021 we completed the rollout of
technology solutions to our trucking field operations. This enables our operating teams to more easily share driver capacity across our terminals and service
lines and provides a single state of the art mobile experience to our drivers on our HubPro mobile app. In 2021, we also delivered solutions using computer
visioning, robotic process automation and artificial intelligence to create increased efficiency in our operations and back office functions. This included the
automation of manual processes, using human augmentation solutions to allow our experienced supply chain professionals to make critical decisions while
allowing a robot to complete the repeatable tasks, and developing learning-based robots to drive better decision support to the hands of operating teams.
We carry commercial general liability insurance subject to a policy aggregate limit, and trucker’s automobile liability insurance with a limit per
occurrence. Additionally, we have an umbrella excess liability policy and maintain motor truck cargo liability insurance. We contract with various third-
party insurers to manage our business and operational risks and expenses.
Development of the Business
We have been a leader in the intermodal industry since our business was founded in 1971. Today we generate over $4 billion in annual revenue,
having grown through the addition of new customers, through cross-selling our services to our customer base, by investing in equipment such as containers
and tractors, by developing new service offerings, and through the acquisitions of new business lines. For example, over the past several years we have
invested in a fleet of refrigerated intermodal containers that represents a new service line for us which we have effectively marketed to our existing
customer base.
We regularly evaluate acquisition and divesture transactions as a component of our strategy to enhance our core business lines and diversify our
service offerings. Our recent strategic transactions include the following:
Choptank Acquisition. On October 19, 2021, we acquired 100% of the equity interests of Choptank Transport, LLC ("Choptank"). The acquisition
added scale to our truck brokerage operation, enhanced our refrigerated trucking transportation services offering and complemented our growing fleet of
refrigerated intermodal containers. The financial results of Choptank, since the date of acquisition, are primarily included in our truck brokerage line of
business.
NonstopDelivery Acquisition. On December 9, 2020, we acquired NonstopDelivery, LLC (“NSD”). NSD provides residential final mile delivery
services throughout the United States. The financial results of NSD, since the date of acquisition, are included in our logistics line of business.
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Services Provided
We operate the following lines of business:
Intermodal. We offer high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both
transcontinental and local lanes by combining rail transportation with local trucking. Our service offering is well positioned to assist our customers in
reducing their transportation spend and achieving their carbon emissions objectives. As an intermodal provider, we arrange for the movement of our
customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul
portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as
“drayage”) are provided by our Hub Group Trucking, Inc. (“HGT”) subsidiary and third-party local trucking companies.
In a typical intermodal transaction, the customer places an order with us and we determine the price and arrange for the necessary intermodal
equipment (which includes a container and chassis) to be delivered to the customer by HGT or a third-party drayage company. We arrange for the
transportation of the loaded container to a rail terminal where it is transported by a railroad to the destination rail terminal. Our predictive track and trace
technology then monitors the shipment to ensure that it arrives as scheduled and provides notification to our customer service personnel if there are service
delays. We then arrange for transportation by a drayage company from the rail terminal to the destination. After unloading, the empty container is made
available for the next transaction.
As of December 31, 2021, we owned approximately 43,750 dry, 53-foot containers and 450 refrigerated 53-foot containers. We also exclusively
leased approximately 250 dry, 53-foot containers.
During 2021, HGT accounted for approximately 50% of Hub’s drayage needs by providing reliable, cost effective transportation services to our
customers. As of December 31, 2021, HGT operated trucking terminals at 25 locations throughout the United States, with locations in many large
metropolitan areas. As of December 31, 2021, HGT owned approximately 1,400 tractors and 200 trailers, employed approximately 1,400 drivers and
contracted with approximately 800 owner-operators.
Logistics. Our logistics business offers a wide range of transportation management services and technology solutions including shipment optimization,
load consolidation, mode selection, carrier management, load planning and execution, and shipment visibility. We offer multi-modal transportation services
including full truckload, LTL, intermodal, final mile, railcar, small parcel and international transportation. We leverage proprietary technology along with
collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our
transportation management offering also serves as a source of volume for our intermodal and truck brokerage service lines.
Our logistics offering also includes warehousing, cross-docking and consolidation services. Many of the customers for these solutions are consumer
goods companies who sell into the retail channel. We do not own or operate any warehouses or cross-docks. We contract with third-party warehouse
providers in seven markets across North America to which our customers ship their goods to be stored and consolidated, along with goods from other
customers, into full truckload shipments destined to major retailers. These services offer our customers shipment visibility, transportation cost savings, high
service and compliance with retailers’ increasingly stringent supply chain requirements.
In December 2020, we acquired NSD which added residential final mile transportation services to our logistics offering. Our final mile services
include warehousing, product assembly, inbound transportation to warehouses, delivery of goods to residential locations, and reverse logistics services.
Customers for our final mile services include retailers and consumer goods companies. We contract with nearly 200 agents across the United States who
provide warehousing and transportation to support our final mile offering.
Truck Brokerage. We operate one of the largest truck brokerage operations in the United States, providing customers with a trucking option for their
transportation needs. Our brokerage does not operate any trucks; instead we match customers’ needs with trucking carriers’ capacity to provide the most
effective combination of service and price. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.
Approximately half of our truck brokerage volume is generated from transactions in which we offer lane-based pricing at a fixed rate for periods of up to
one year (referred to as “committed” pricing). The remaining portion of our volume is generated based on shorter term transactional lane-based rates
(referred to as “transactional” pricing).
In a typical truck brokerage transaction, the customer places an order with us for trucking transportation. We identify a third party trucking carrier to
handle the load and coordinate a delivery appointment. Once we receive confirmation that the freight has been picked up, we monitor the movement of the
shipment until it reaches its destination and the delivery has been confirmed.
We offer a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed. We substantially
increased the size of our brokerage service line and increased our refrigerated transportation capabilities through the acquisition of Choptank Transport,
LLC in October 2021 (“Choptank”). In addition, we intend to deploy Choptank’s best-in-class technology platform across our existing brokerage operation,
which we expect will result in improved efficiency.
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Dedicated. Our dedicated trucking operation contracts with customers who require high service transportation using equipment dedicated to their
needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the
customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for
early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment. Our dedicated operation currently
operates a fleet of approximately 1,000 tractors and 4,600 trailers at 68 locations throughout the United States. As of December 31, 2021, dedicated
employed approximately 1,100 drivers.
Relationships with Transportation and Warehouse Vendors
We utilize an asset-light strategy that employs a combination of our company-operated equipment as well as assets operated by third parties to
transport and store our customers’ goods, which allows us to optimize our investment in equipment and facilities and reduce the level of capital we employ
in our business. We are one of the largest purchasers of rail transportation services in North America and generally have multi-year contractual agreements
with our railroad providers that specify the costs we pay for transportation and related services, as well as service levels and other provisions. Due to the
importance of our relationship, some of our railroad providers have dedicated support personnel to focus on our day-to-day service requirements. On a
regular basis, our senior executives and our railroad providers meet to discuss major strategic issues concerning intermodal transportation.
Approximately half of our drayage services are provided by HGT which owns a fleet of approximately 1,400 tractors and employs approximately
1,400 drivers. In addition, HGT contracts with approximately 800 owner-operators who supply their own equipment and operate under our regulatory
authority. We also procure drayage services from third parties, and we believe we are one of the largest purchasers of drayage transportation in the United
States. Our dedicated services are generally handled by our fleet of approximately 1,000 tractors and 4,600 trailers and approximately 1,100 drivers.
Our brokerage and logistics business lines are significant purchasers of truckload and less-than-truckload transportation from third parties. We
contract with a large number of trucking companies that we use to provide these transportation services. Our relationships with these trucking companies
are important since these relationships determine pricing, load coverage and service that we provide to our customers.
We have relationships with several national and local operators of warehouses and cross-dock facilities who provide a range of services to us
including storage, product handling and related activities. Our final mile operation contracts with nearly 200 local agents who provide warehousing and
local delivery services.
We require all of our trucking vendors to carry general liability insurance, truckman’s auto liability insurance and cargo insurance. Railroads, which
are self-insured, provide limited cargo protection. To cover freight loss or damage when a carrier’s liability cannot be established or a carrier’s insurance is
insufficient to cover the claim, we carry our own cargo insurance. We also carry general liability insurance with a companion umbrella policy on this
general liability insurance. We maintain separate insurance policies to cover potential exposure from our company-owned drayage and dedicated
operations.
Government Regulations
The Company and several of our subsidiaries are licensed by the United States Department of Transportation (“DOT”) as brokers in arranging for the
transportation of general commodities by motor vehicle. To the extent that we perform truck brokerage services, we do so under these licenses. The DOT
prescribes qualifications for acting in this capacity. Our trucking subsidiaries operate under DOT motor carrier authority. We are licensed by the United
States Federal Maritime Commissions (“FMC”) as an Ocean Transportation Intermediary authorized to provide ocean freight forwarding and non-vessel
operating common carrier services, which are regulated by the FMC. Our business is also subject to requirements published by the United States Food and
Drug Administration under the Food Safety Modernization Act regarding the use of sanitary transportation practices to ensure the safety of food
transported by motor vehicle and rail. To date, compliance with these regulations and licensing requirements has not had a material adverse effect on our
capital expenditures, earnings or competitive positions.
There are federal, state and local laws and regulations concerning environmental matters and employee health and safety that apply to the Company’s
operations. The Company is also subject to various federal, state and local laws and government regulations related to employment in the jurisdictions
where we conduct business. Complying with these and other laws and regulations has not had a materially adverse effect on the Company’s business.
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Custom-Trade Partnership Against Terrorism
One of our subsidiaries achieved Custom-Trade Partnership Against Terrorism (C-TPAT) certification in 2013 and have maintained it since then. C-
TPAT is a voluntary supply chain security program led by United States Customs and Border Protection focused on improving the security of private
companies’ supply chains. Companies who achieve C-TPAT certification must have a documented process for determining and alleviating risks throughout
their international supply chain. This certification allows us to be considered low risk, resulting in expedited processing of our customers’ cargo, including
fewer customs examinations.
Human Capital
Hub conducts business and provides services to customers through a combination of non-driver (e.g., office or terminal-based) employees, driver
employees, and relationships with independent contractors. As of December 31, 2021, Hub had approximately 4,700 employees, which included
approximately 2,400 drivers. In addition, as of December 31, 2021 we contracted with approximately 800 independent contractor drivers. We do not
employ any warehouse operations staff. We are not a party to any collective bargaining agreements and consider our relationship with our employees to be
satisfactory.
Hub’s success depends in part on our ability to attract and retain skilled staff members and drivers. Our executive management team receives regular
updates regarding headcount changes, turnover rates, hiring rates, manager training and employee satisfaction. We invest in the development of our
employees through our Hub University learning management system, which provides access to a variety of e-learning courses and modules to further
develop job skills, increase knowledge of our business, and promote adherence to safety and compliance procedures. We seek to offer a competitive
compensation package, which may include incentive compensation elements, as well as an attractive package of employee benefits. We are committed to
employee engagement and an inclusive culture that values and respects every employee.
Hub strives to create a culture of accountability, safety and teamwork. We set annual performance goals for our operations teams relative to collisions
and injuries and track performance monthly and year-to-date to ensure accountability. Further, we provide company-wide recognition on a monthly basis
for employees who are nominated for performance that demonstrates our guiding principles of winning together, innovating with purpose and acting with
integrity.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the Securities and Exchange Commission
(“SEC”). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements and other information with the
SEC. The reports and other information that we file with the SEC are available free of charge on our website at www.hubgroup.com as soon as reasonably
practicable after we electronically file or furnish such reports to the SEC. In addition, the SEC maintains a website (http://www.sec.gov) that contains our
annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC.
Information on the websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are
intended to be inactive textual references only.
Item 1A. RISK FACTORS
Business Environment and Competition Risks
A significant portion of our revenue is derived from intermodal transportation services and from our significant customers.
We derived 57% of our revenue from our intermodal services in 2021, 58% in 2020 and 57% in 2019. As a result, any decrease in demand for
intermodal transportation services could have a material adverse effect on our results of operations.
Our 10 largest customers accounted for approximately 42% of our total revenue in 2021, 46% in 2020 and 42% in 2019. In each of the years ended
December 31, 2021 and 2020, one customer accounted for more than 10% of our annual revenue. While our dedicated and logistics businesses may involve
long-term customer contracts, those contracts may contain cancellation clauses, and there is no assurance that our current customers will continue to utilize
our services or continue at the same levels. A reduction in or termination of our services by one or more of our largest customers could have a material
adverse effect on our revenue and business. While we continue to focus our efforts on diversifying our customer base, we may not be successful in doing
so.
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Because we depend on railroads for our operations, our operating results and financial condition are likely to be adversely affected by any
increase in rates, reduction or deterioration in rail service or change in the railroads’ reliance on us to market their intermodal transportation
services.
We depend on the major railroads in North America for virtually all of the intermodal services we provide. In many regions, rail service is limited to
one or a few railroads. We primarily rely on contractual relationships with two railroads to support our intermodal business. Consequently, a reduction in,
or elimination of, rail service to a particular market is likely to materially adversely affect our ability to provide intermodal transportation services to some
of our customers. Rate increases result in higher intermodal transportation costs, reducing the attractiveness of intermodal transportation compared to truck
or other transportation modes, which could cause a decrease in demand for our services. Further, our ability to continue to expand our intermodal
transportation business is dependent upon the railroads’ ability to increase capacity for intermodal freight and provide consistent and reliable service. Our
business has, at times, been adversely affected by situations impacting one or more railroads, including labor shortages, slowdowns or stoppages, adverse
weather conditions, changes to rail operations, or other factors that hinder the railroads’ ability to provide reliable transportation services and these
situations may occur again in the future. To date, our primary railroad providers have chosen to rely on us and other intermodal competitors to market their
intermodal services rather than fully developing their own marketing capabilities. If one or more of the major railroads reduced their dependence on us or
decreased the capacity that they made available to us, including by servicing additional intermodal marketing companies, the volume of intermodal
shipments we arrange would likely decline, which could have a material adverse effect on our results of operations and financial condition.
Our ability to expand our business or maintain our profitability is adversely affected by a shortage of drivers and capacity.
We derive significant revenue from our intermodal, logistics, truck brokerage and dedicated services and depend on qualified drivers to provide these
services. There is significant competition for qualified drivers in the transportation industry. Additionally, interventions and enforcements under the Federal
Motor Carrier Safety Administration (“FMCSA”) Compliance, Safety, Accountability program or other programs may shrink the industry’s pool of drivers
as those drivers with unfavorable scores may no longer be eligible to drive for us. Driver shortages and reliance on third-party companies for the operation
of our intermodal, logistics, truck brokerage and dedicated services has, and in the future could, adversely affect our profitability and limit our ability to
expand our business or retain customers. Most drayage, truckload, final mile, and certain less-than-truckload companies operate relatively small fleets and
have limited access to capital for fleet expansion. Particularly during recent and future periods of economic expansion, it is difficult for our dedicated and
HGT operations, and third-party trucking companies, to expand their fleets due to chronic driver shortages. Driver shortages have resulted in increases to
drivers’ compensation that we may be unable to fully pass on to our customers and have left trucks sitting idle and created difficulty meeting customer
demands, all of which could adversely affect our growth and profitability.
We operate in a highly competitive industry and our business may suffer if we are unable to adequately address potential downward pricing
pressures and other competitive factors.
The transportation and logistics industry is highly competitive and cyclical. We face competition in all geographic markets and each industry sector in
which we operate. Increased competition or our inability to compete successfully may lead to a reduction in our volume, reduced revenues, reduced profit
margins, increased pricing pressure, or a loss of customer relationships, any one of which could affect our business and financial results. Numerous
competitive factors could impair our ability to maintain our current profitability, including the following:
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our competitors may periodically reduce their prices to gain business, especially during times of weak economic conditions, which may limit our
ability to maintain or increase prices or impede our ability to maintain or grow our customer relationships;
our inability to achieve expected customer retention levels or sales growth targets;
• we compete with many other transportation and logistics service providers, some of which have greater capital resources or lower cost structures
than us;
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our inability to compete with new entrants in the transportation and logistics market that may offer similar services at lower cost or have greater
technological capabilities;
customers may choose to provide for themselves the services that we now provide;
• many customers periodically accept proposals from multiple carriers for their shipping needs, and this process may depress rates or result in the loss
of some of our business to competitors;
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consolidation in the trucking industry may result in larger competitors with greater financial resources than we have;
disruptions to the supply chain or other market factors may limit our ability to purchase equipment from our suppliers;
advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover
the cost of these investments; and
because cost of capital is a significant competitive factor, any increase in either the cost of our debt or equity as a result of increases in our level of
credit risk or stock price volatility could have a significant impact on our competitive position.
Our customers’ and suppliers’ businesses may be negatively affected by various economic and other factors such as recessions, downturns in the
economy, global uncertainty and instability, the effects of pandemics, changes in United States social, political, and regulatory conditions and/or a
disruption of financial markets, which may decrease demand for our services or increase our costs.
Adverse economic and other conditions, both in the United States and internationally, can negatively affect our customers’ business levels, the amount
of transportation services they need, their ability to pay for our services and overall freight levels, any of which might impair our asset utilization and
profitability. For example, the effects of pandemics (including the coronavirus) may affect international trade, supply chains, travel, employee productivity
and other economic activities. Additionally, uncertainty and instability in the global economy, geopolitical events, and any other action that governments
may take to withdraw from or materially modify international trade arrangements may lead to fewer goods being transported and could have an adverse
effect on our business, financial conditions and results of operations. The United States government and foreign governments may take other actions that
may impact United States trade, including imposing tariffs on certain goods, that may have an adverse impact on our business and on goods imported into,
or exported from, the United States. These potential “trade wars” could increase costs for goods transported globally, which may reduce customer demand
for these products if the parties having to pay those tariffs increase their prices, or if trading partners limit their trade with countries that impose anti-trade
measures. If these consequences are realized, the volume of global economic activity may be significantly reduced. Such a reduction could have a material
adverse effect on our business, results of operations, and financial condition.
Customers adversely affected by changes in United States trade policies or otherwise encountering adverse economic or other conditions may be
unable to obtain additional financing or financing under acceptable terms. These customers represent a greater potential for bad debt losses, which may
require us to increase our reserve for bad debt. Economic conditions resulting in bankruptcies of one or more of our large customers could have a
significant impact on our financial position, results of operations or liquidity in a particular year or quarter. Further, when adverse economic times arise,
customers may select competitors that offer lower rates in an attempt to lower their costs and we might be forced to lower our rates or lose freight volumes.
Our suppliers’ business levels also may be negatively affected by adverse economic and other conditions and changes in the political and regulatory
environment, as well as the effects of geopolitical events, pandemics and other public concerns, both in the United States and internationally, or financial
constraints, any one of which could lead to disruptions in the supply and availability of equipment, parts and services critical to our operations. A
significant interruption in our normal supply chain could disrupt our operations, increase our costs and negatively impact our ability to serve our customers.
We are also subject to cost increases outside of our control that could materially reduce our profitability if we are unable to increase our rates
sufficiently. Such cost increases include, but are not limited to, increases in wage rates, fuel prices, interest rates, taxes, tolls, license and registration fees,
insurance, equipment and healthcare for our employees.
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Our business could be adversely affected by strikes or work stoppages by truck drivers, warehouse employees, port employees and railroad
employees, or the decision of our employees to unionize.
There may be labor unrest, including strikes and work stoppages, among workers at various transportation providers and in industries affecting the
transportation industry, such as warehousing and ports. We could lose business due to any significant work stoppage or slowdown and, if labor unrest
results in increased rates for transportation providers, we may not be able to pass these cost increases on to our customers. Strikes, work slowdowns, or
labor shortages among longshoremen and other workers at ports in recent years have resulted in reduced activity at the ports for a time, creating an impact
on the transportation industry. Work stoppages occurring among owner-operators in a specific market have increased our operating costs periodically in the
past. In recent years, there have been strikes involving railroad workers. Future strikes by railroad employees in the United States, Canada or anywhere else
that our customers’ freight travels by railroad would impact our operations. Any significant work stoppage, slowdown or other disruption, including
disruption due to restrictions imposed as a result of a pandemic, involving port employees, railroad employees, warehouse employees or truck drivers could
adversely affect our business and results of operations.
Currently, none of our employees are represented by a collective bargaining agreement. If in the future our employees decide to unionize, this would
increase our operating costs and force us to alter the way we operate causing an adverse effect on our operating results.
Relatively small increases in our transportation and warehouse costs that we are unable to pass through to our customers are likely to have a
significant adverse effect on our gross margin and operating income.
Transportation and warehouse costs represented 86% of our consolidated revenue in 2021, 88% in 2020 and 86% in 2019. Because transportation and
warehouse costs represent such a significant portion of our costs, any increases in the operating costs of railroads, warehouse vendors, and other
transportation providers can be expected to result in higher freight rates that we pay to such providers. Transportation costs may increase if we are unable to
contract with owner-operators or recruit Company employee drivers as this may increase the costs we pay for drivers or force us to use more expensive
purchased transportation. Any inability to pass cost increases to our customers is likely to have a significant adverse effect on our gross margin and
operating income and cash flows.
Our business depends on the availability of fuel. Fuel availability and cost are affected by natural or man-made disasters, adverse weather conditions,
political events, disruption or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, terrorist
activities, armed conflict and world supply and demand imbalance. We do not maintain fuel storage and pumping stations at all of our facilities. Therefore,
a disruption in the global fuel supply resulting from factors outside of our control, hence increasing the demand for fuel traditionally used by trucks could
have a material adverse effect on our business, results of operations, financial condition and cash flows.
Additionally, fuel costs can be very volatile and fuel price fluctuations occur due to factors outside our control. Significant increase in fuel prices or
fuel taxes that we are unable to offset by any fuel surcharges or freight rate increases could have an adverse impact on our business operations. We have a
fuel surcharge program in place with many of our customers. These fuel surcharges typically allow us the ability to recover the costs associated with
volatile fuel prices. Our inability to time the fuel surcharges billed to customers with the change in fuel costs could affect our operations. Rapid increases in
fuel costs could also have a material adverse effect on our operations or future profitability.
Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a
material adverse effect on our business results.
Our operations are affected by external factors such as severe weather and other natural occurrences, including floods, fires, hurricanes and
earthquakes that adversely impact operating locations where we have vehicles, warehouses and other facilities. As a result, our vehicles and facilities may
be damaged, our workforce may be unavailable, fuel costs may rise, and significant business interruptions could occur. In addition, the performance of our
vehicles could be adversely affected by extreme weather conditions. Insurance to protect against loss of business and other related consequences resulting
from these natural occurrences is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover
all of our damages or damages to others and this insurance may not continue to be available at commercially reasonable rates. Even with insurance, if any
natural occurrence leads to a catastrophic interruption of service, we may not be able to mitigate a significant interruption in operations.
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Our insurance program may not be sufficient to cover all anticipated risks and liabilities associated with our operations.
We are partially self-insured for certain employee medical coverage losses, excluding employees covered by health maintenance organizations. We
generally have an individual stop loss deductible per enrollee unless specific exposures are separately insured. We accrue a contingent liability based upon
examination of historical trends, historical actuarial analysis, our claims experience, total plan enrollment (including employee contributions), population
demographics, and other various estimates. Self-insurance reserves, net income, and cash flows could be materially affected if future claims differ
significantly from our historical trends and assumptions.
We are partially self-insured for vehicle liability and workers’ compensation claims. Our self-insurance accruals are based on actuarially estimated,
undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed and comply
with generally accepted accounting principles and other accounting and finance best practices, any projection of losses concerning workers’ compensation
and vehicle liability is subject to a considerable degree of variability. The causes of this variability include litigation trends, claim settlement patterns and
fluctuations in the frequency or severity of accidents. If actual losses incurred are greater than those anticipated, our self-insurance reserves may be
insufficient and additional costs could be recorded in our consolidated financial statements. If we suffer a substantial loss in excess of our self-insured
limits, the loss and attendant expenses may be covered by traditional insurance and excess insurance the Company has in place, but if not covered or above
such coverages, losses could harm our business, financial condition or results of operations.
We also are exposed to various other types of claims, including cargo loss and damage, property damage, and personal injury. We maintain insurance
coverage with third-party insurance carriers for these types of claims as well as for other business and operational risks (including cybersecurity, data
privacy, Directors & Officers), but we assume a significant portion of the risk associated with these claims due to high self-insured retention (“SIR”) and
deductibles. Our operating results could be adversely affected if any of the following were to occur: (i) the number or the severity of claims increases; (ii)
we are required to accrue or pay additional amounts because claims prove to be more severe than our original assessment; or (iii) claims exceed our
coverage amounts. If the number or severity of claims increases, our operating results could also be adversely affected if the cost to renew our insurance
was increased when our current coverage expires. If these expenses increase, and we are unable to offset the increase with higher freight rates to our
customers, our earnings could be materially and adversely affected. In addition, insurance companies generally require us to collateralize our SIR or
deductible levels. At December 31, 2021, we had insurance-related letters of credit totaling $41.3 million. If these collateralization requirements increase,
our borrowing capacity could be adversely affected.
Pandemics could materially and adversely affect our business, financial condition and results of operations, the ultimate impacts of a pandemic,
including COVID-19, on our business, financial condition and results of operations depends on future developments and other factors that are
highly uncertain and will be affected by the scope and duration of a pandemic (including variants and resurgences) and actions taken by
individuals, companies and governmental authorities in response to such a pandemic.
The ongoing COVID-19 pandemic (including variants and resurgences) has caused and is expected to continue to cause significant disruption in the
international and United States economies and financial markets and has had and may continue to have a significant effect on our business, financial
condition and results of operations. In response to the COVID-19 pandemic, federal, state and foreign governments have taken actions, such as imposing
restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, ordering temporary
closures or other restrictions of businesses, and imposing requirements related to vaccines, masks, testing and other measures on companies and
individuals, that may continue to impact our business, financial conditions and results of operations and those of our customers and suppliers.
The ultimate duration of the pandemic and of responsive governmental actions is uncertain and evolving, particularly as new variants have emerged.
New and changing government and private actions to address the COVID-19 pandemic have been occurring regularly. We have been closely monitoring
the COVID-19 pandemic and government responses thereto and its impacts and potential impacts on our business, including operational challenges from
the need to protect employee health and safety. These circumstances and other consequences of the pandemic, have resulted in significant adverse effects
for many different types of businesses who are our customers or suppliers, including, among others, those in the retail, travel, hospitality and food and
beverage industries, which can result in volatility in customers’ need for our services or suppliers’ availability to provide products and services to us.
We have been deemed an essential business and have been permitted to continue to operate in all of the jurisdictions in which we operate, including
jurisdictions that have mandated the closure of certain businesses, and we expect to be permitted to continue to operate in the future. Nevertheless, there is
no assurance that we will continue to be permitted to operate under every future government order or other restriction and in every location and government
requirements may have an adverse impact on our business operations, including with respect to availability of truck drivers in the sectors in which we
operate.
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In addition, the COVID-19 pandemic has caused, and may in the future continue to cause, disruptions, and in some cases severe disruptions, to the
business and operations of our customers and suppliers as a result of quarantines, worker absenteeism as a result of illness or other factors, social distancing
measures, consumer concerns, and other travel, health-related, business or other restrictions. Certain of our customers have been, and may in the future be,
required to close or operate at a lower capacity. There can be no assurance that any decrease in revenues or volume resulting from the COVID-19 pandemic
will be offset by increased revenues or volume in the future. The ultimate effects of the COVID-19 pandemic on the broader economy and the markets that
we serve are not known nor is the ultimate length of the restrictions and circumstances described above and any accompanying effects.
The further spread of the COVID-19 virus, as well as ongoing or new governmental, regulatory and private sector responses to the pandemic, may
materially disrupt economic activity generally and in the areas in which we operate. This could result in further decline in demand for our services, and
could negatively affect, among other things, our liquidity, regulatory capital and our growth strategy. Any one or more of these developments could have a
material adverse effect on our business, financial condition and results of operations.
Although we are taking precautions to protect the safety and well-being of our team members, customers and suppliers, no assurance can be given that
the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our team members’ ability
to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and
results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which
could further adversely affect our business, financial condition and results of operations.
Technology and Cybersecurity Risks
If we fail to maintain and enhance our information technology systems, or if we fail to successfully implement new technology or enhancements,
we may be at a competitive disadvantage and lose customers.
Technology is critical to our operations and our ability to compete effectively as a transportation and logistics provider. We expect our customers to
continue to demand more sophisticated technology-driven solutions from their suppliers and we must enhance or replace our information technology
systems in response. This may involve significant research and development costs, implementation costs and potential operational challenges. To keep pace
with changing technologies and customer demand, we continue to make investments in our technology, as well as invest in emerging technology to further
drive innovation and efficiency. Recent investments include implementing new order management, transportation management, contract management and
financial management processes and systems. Technology and new market entrants may also disrupt the way we and our competitors operate. As
technology improves and new companies enter the freight brokerage sector, our customers may be able to find alternatives to our services for matching
shipments with available freight hauling capacity. We must continue to develop innovative emerging technologies to source, track and provide visibility to
capacity to further improve customer outcomes.
If we fail to successfully implement critical technology, if our technology does not provide the anticipated benefits or it does not meet market
demands, we may be placed at a competitive disadvantage and could lose customers, materially adversely impacting our financial condition and results of
operations.
Our information technology systems also depend upon the Internet, third-party service providers, global communications providers, satellite-based
communications systems, the electric utilities grid, electric utility providers and telecommunications providers as well as their respective vendors. The
services and service providers have all experienced significant system failures and outages at some point in the past. We have minimal control over the
operation, quality, or maintenance of these services or whether vendors will improve their services or continue to provide services that are essential to our
business. Disruptions due to transitional challenges in upgrading or enhancing our technology systems; failures in the services upon which our information
technology platforms rely, including those that may arise from adverse weather conditions or natural calamities, such as floods, hurricanes, earthquakes or
tornadoes; illegal acts, including terrorist attacks; human error or systems modernization initiatives; and/or other disruptions, may adversely affect our
business, which could increase our costs or result in a loss of customers that could have a material adverse effect on our results of operations and financial
position.
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Our information technology systems are subject to cyber and other risks some of which are beyond our control. A security breach, failure or
disruption of these services could have a material adverse effect on our business, results of operations and financial position.
We rely heavily on the proper functioning and availability of our information systems for our operations as well as for providing value-added services
to our customers. Our information systems, including our accounting, communications and data processing systems, are integral to the efficient operation
of our business. It is critical that the data processed by these systems remain secure, as it often includes competitive customer information, confidential
transaction data, employee records and key financial and operational results and statistics. The sophistication of efforts by hackers, foreign governments,
cyber-terrorists, and cyber-criminals, acting individually or in coordinated groups, to launch distributed denial of service attacks, ransomware or other
coordinated attacks that may cause service outages, gain inappropriate or block legitimate access to systems or information, or result in other business
interruptions has continued to increase in recent years. We utilize third-party service providers who have access to our systems and certain sensitive data,
which exposes us to additional security risks, particularly given the complex and evolving laws and regulations regarding privacy and data protection.
While we and our third-party service providers have experienced cyber-attacks and attempted breaches of our and their information technology systems and
networks or similar events from time to time, no such incidents have been, individually or in the aggregate, material to us. Cyber incidents that impact the
security, availability, reliability, speed, accuracy or other proper functioning of our systems, information and measures, including outages, computer
viruses, theft or misuse by third parties or insiders, break-ins and similar disruptions, could have a significant adverse impact on our operations.
It is difficult to fully protect against the possibility of power loss, telecommunications failures, cyber-attacks, ransomware and other cyber incidents in
every potential circumstance that may arise. A significant cyber incident, including system failure, security breach, disruption by malware or ransomware,
or other damage, could interrupt or delay our operations, damage our reputation and brand, cause a loss of customers, expose us to a risk of loss or
litigation, result in regulatory scrutiny, investigations, actions, fines or penalties and/or cause us to incur significant time and expense to remedy such an
event, any of which could have a material adverse impact on our results of operations and financial position. Furthermore, any failure to comply with data
privacy, biometric privacy, data security or other laws and regulations could result in claims, legal or regulatory proceedings, inquiries or investigations. To
comply with this changing landscape, we may be required to further segregate our systems and operations, implement additional controls, or adopt new
systems , all of which could increase the cost and complexity of our operations. In addition, our insurance intended to address costs associated with aspects
of cyber incidents, network failures and privacy-related concerns, may not sufficiently cover all types of losses or claims that may arise.
Operational Risks
We depend on third parties for equipment and services essential to operate our business, and if we fail to secure sufficient equipment and services,
we could lose customers and revenue.
We depend on third parties for transportation equipment, such as tractors, containers, chassis, and trailers and certain services such as transportation,
warehousing and cross docks necessary for the operation of our business. Our industry has experienced equipment, transportation and warehouse capacity
shortages in the past, particularly during the peak shipping season in the fall. Market disruptions related to the COVID-19 pandemic have contributed to
recent shortages of such equipment and services and this situation may continue. A substantial amount of intermodal freight originates at or near the major
West Coast ports, which have historically had the most severe equipment shortages. As an asset-light freight transportation management company, if we
cannot secure sufficient transportation equipment and warehouse services at a reasonable price from third parties to meet our customers’ needs, our
customers may seek to have their transportation and warehousing needs met by other providers with their own assets. This could have a material adverse
effect on our business, results of operations and financial position.
Our residential final mile delivery service exposes us to risks associated with vendors delivering to residential customers.
While we do not operate any equipment or employ any drivers that are used in the provision of final mile services, our vendors’ trucks and drivers
operate in residential environments that expose such vendors (and potentially us) to the risk of property damage, personal injury and other claims including
from operating on residential streets and from entering into end-consumers’ homes. If any of these vendors do not reliably and safely perform their
obligations, our vendors and us could be exposed to liability or reputational harm.
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The ability to hire or retain management and other employees is critical to our continued success, and the loss of or inability to hire such
personnel could have a material adverse effect on our business, financial condition and results of operations.
There is substantial competition for qualified personnel in the transportation services industry. Many individuals in the industry are subject to non-
competition agreements, severely limiting our ability to hire qualified personnel to compete in the market-place. As all key employees devote their full time
to our business, the loss of any member of our management team, or other key persons, or the inability to hire key persons, could have an adverse effect on
us. We do not have written employment agreements with any of our executive officers and do not maintain key man insurance on any of our executive
officers, although we do have restrictive covenant agreements with all of them. If we lose key members of our senior management team or are unable to
effect successful transitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations
or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.
Our growth could be adversely affected if we are not able to pursue our acquisition strategy or to successfully integrate acquired businesses.
We cannot guarantee that we will be able to execute acquisitions on commercially acceptable terms. Furthermore, the failure to successfully integrate
an acquired business or assets, including implementing financial controls and measures or achieving cross-selling objectives, could significantly impact our
financial results. Although we believe we have adequate liquidity and capital resources to fund our operations internally, our inability to access the capital
markets on favorable terms, or at all, to obtain adequate financing from debt or capital sources could adversely affect our ability to pursue growth through
acquisitions. Financial results most likely to be negatively affected include, but are not limited to, revenue, gross margin, salaries and benefits, general and
administrative expenses, depreciation and amortization, interest expense, net income and our debt level.
Legal, Regulatory and Compliance Risks
We use a significant number of independent contractors, such as owner operators, in our businesses. Legislative, judicial and regulatory
authorities may continue to take actions or render decisions that could affect the independent contractor classification, which could have a
significant adverse impact on our gross margin and operating income.
We do business with a large number of independent contractors, such as owner-operators, consistent with longstanding industry practices. Legislative,
judicial, and regulatory (including tax) authorities have taken actions and rendered decisions that could affect independent contractor classifications. Class
action and individual lawsuits have been filed against us and others in our industry, challenging independent contractor classifications. See Item 3 - Legal
Proceedings for further discussion and see Note 15 to the consolidated financial statements under “Legal Matters” for a description of material pending
litigation and regulatory matters affecting us and certain risks to our business presented by such matters. If independent contractors are determined to be
employees, or the Company a joint employer of warehousemen used for our consolidation or final mile delivery business, then we may incur legal
liabilities associated with that determination, such as liability for unpaid wages, overtime, employee health insurance and taxes. If we were to change how
we treat independent contractors or reclassify independent contractors to employees, then we would likely incur expenses associated with that
reclassification, could incur additional ongoing expenses and face the loss of those independent contractor drivers who choose not to become employees.
The costs associated with these matters could have a material adverse effect on results of operations and our financial position.
We operate in a highly regulated industry, and changes in existing regulations or costs of compliance with, or liability for violation of, existing or
future regulations or antiterrorism measures could have a material adverse effect on our business.
The Company and various subsidiaries are regulated by the DOT as motor carriers and/or freight brokers. The DOT prescribes qualifications for
acting in these capacities, including surety bond requirements. The transportation industry is subject to DOT regulations regarding, among other things,
driver breaks and “restart” rules that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and
cost of providing, transportation services. The FMCSA, under the DOT, also manages a compliance and enforcement initiative partnering with state
agencies designed to monitor and improve commercial vehicle motor safety. We are audited periodically by the DOT to ensure that we are in compliance
with various safety, hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could levy fines and restrict or
otherwise impact our operations. We may also become subject to new or more restrictive regulations relating to carbon emissions under climate change
legislation or limits on vehicle weight and size. Future laws and regulations may be more stringent and require changes in operating practices, influence the
demand for transportation services or increase the cost of providing transportation services, any of which could materially adversely affect our business and
results of operations.
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We are subject to a wide variety of U.S. federal and state and non-U.S. laws, regulations and government policies, including in the areas of
employment, privacy, cybersecurity, securities, anti-corruption, competition and trade, that may change in significant ways. We are not able to accurately
predict how new governmental laws and regulations, or changes to existing laws and regulations, will affect the transportation industry generally, or us in
particular. We are also unable to predict how political changes will affect government regulation of the transportation industry. If we incur higher costs as a
result of any new regulations and are unable to pass along such costs to our customers, our business may be adversely affected.
Our failure to comply with any existing or future laws, rules or regulations to which we are, or may become subject, whether actual or alleged, could
have a material adverse effect on our business and on our ability to access the capital required to operate our business. Among other things, any such failure
could expose us to reputational harm, loss of business, fines, penalties or potential litigation liabilities, including costs, settlements and judgments, as well
as the loss of operating authority and restrictions on our operations.
Furthermore, terrorist attacks or other geopolitical events, along with any government response to such events, may adversely affect our financial
condition, results of operations or liquidity. Our fleet, other key infrastructure and information technology systems may be targets or indirect casualties of
acts of terror, other harmful acts, or war. Further, because transportation assets continue to be a target of terrorist activities, federal, state, local and foreign
governmental bodies are proposing and, in some cases, have adopted legislation and regulations relating to security issues that impact the transportation
industry, including checkpoints and travel restrictions on large trucks. If additional security measures disrupt or impede the timing of our operations, we
may fail to meet the requirements of our customers or incur increased expenses to do so. In addition, complying with these or future regulations could
continue to increase our operating costs and reduce operating efficiencies. We maintain insurance coverages addressing these risks; however, such
insurance may be inadequate or become unavailable, be limited in scope of coverage, premiums charged for some or all of the insurance could increase
dramatically, or regulations may change. These changes could exacerbate the effects of an act of terrorism or other event on our business, resulting in a
significant business interruption, increased costs and liabilities and decreased revenues or an adverse impact on results of operation.
Our operations are subject to various environmental laws and regulations, including legislative and regulatory responses to climate change.
Compliance with environmental requirements could result in significant expenditures and the violation of these requirements could result in
substantial fines or penalties.
We are subject to various federal, state and local governmental laws and regulations that govern, among other things, the emission and discharge of
hazardous materials into the environment, the presence of hazardous materials at our properties or in our vehicles, fuel storage tanks, the transportation of
certain materials and the discharge or retention of storm water. Under certain environmental laws, we could also be held responsible for any costs relating
to contamination at our past or present facilities and at third-party waste disposal sites, as well as costs associated with the clean-up of accidents involving
our vehicles. Environmental laws have become and may continue to be increasingly more stringent over time, and there can be no assurance that our costs
of complying with current or future environmental laws or liabilities arising under such laws will not have a material adverse effect on our business,
operations or financial condition.
From time to time, we arrange for the movement of hazardous materials at the request of our customers. As a result, we may be subject to various
environmental laws and regulations relating to the handling of hazardous materials. If we are involved in a spill or other accident involving hazardous
materials, or if we are found to be in violation of applicable laws or regulations, we could be subject to substantial fines or penalties and to civil and
criminal liability, any of which could have an adverse effect on our business and results of operations.
The Company is also subject to certain federal and state environmental laws and regulations, including those of the U.S. Environmental Protection
Agency (“EPA”) and the California Air Resources Board (“CARB”). We may become subject to enforcement actions, new or more restrictive regulations,
or differing interpretations of existing regulations, which may increase the cost of providing transportation services or adversely affect our results of
operations. In addition to EPA and state agency regulations on exhaust emissions with which we must comply, there is an increased legislative and
regulatory focus on climate change, greenhouse gas emissions and the impact of global warming that enhances the possibility of increased regulation of
greenhouse gas emissions and potentially exposes us to significant new taxes, fees and other costs. We are also subject to environmental, sustainability and
governance (“ESG”) issues. This increased focus on ESG issues may result in new regulations and/or customer, supplier or market requirements that could
adversely impact our business, or certain shareholders who may reduce their holdings of our stock. Limitations on the emission of greenhouse gases, other
environmental legislation, or customer ESG requirements have had and could have an adverse impact on our financial condition, results of operations and
liquidity.
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We are subject to the risks of litigation and governmental inquiries, which could have a material adverse effect on our business.
The nature of our business exposes us to a variety of litigation risks related to a number of issues, including without limitation, accidents involving our
trucks and employees, alleged violations of federal and state labor and employment laws, securities laws, environmental liability and other matters.
Accordingly, we are, and in the future may be, subject to legal proceedings and claims that have arisen in the ordinary course of our business, including
class and collective allegations. We are also subject to potential governmental proceedings, inquiries, and claims. The parties in such actions may seek
amounts from us that may not be covered in whole or in part by insurance. The defense of such lawsuits could result in significant expense and the
diversion of our management’s time and attention from the operation of our business. In recent years, several insurance companies have stopped offering
coverage to trucking companies as a result of increases in the severity of automobile liability claims and higher costs of settlements and verdicts. This trend
has and could continue to adversely affect our ability to obtain suitable insurance coverage and significantly increase our cost for obtaining such coverage,
which would adversely affect our financial condition, results of operations, liquidity and cash flows. Costs we incur to defend or to satisfy a judgment or
settlement of these claims may not be covered by insurance or could exceed the amount of that coverage or increase our insurance costs and could have a
material adverse effect on our financial condition, results of operations, liquidity and cash flows.
Changes in immigration laws could increase the costs of doing business or otherwise disrupt our operations.
We have hired individuals, including Information Technology (“IT”) employees, from outside the United States. We have employee drivers and
owner-operator drivers who are immigrants to the United States. We engage third party consultants, including for various IT projects, who may utilize
personnel from outside the United States. If immigration laws are changed or if new more restrictive government regulations are enacted or increased, our
access to qualified and skilled personnel may be limited, the costs of doing business may increase and our operations may be disrupted.
Our business may be affected by uncertainty or changes in United States or global social, political or regulatory conditions.
We arrange for the movement of freight, a portion of which originates from other countries, including China, into and out of the United States, Mexico
and Canada, and we import 53-foot intermodal containers manufactured in China. Adverse developments in laws, policies or practices in the United States
and internationally can negatively impact our business and the business of our customers. Negative domestic and international global trade conditions as a
result of social, political or regulatory changes or perceptions (such as those that might be associated with pandemics) could materially affect our business,
financial conditions and results of operations. We provide services both domestically and to a lesser extent outside of the United States, which subjects our
business to various additional risks, including:
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changes in tariffs, trade restrictions, trade agreements and taxes;
varying tax regimes, including consequences from changes in applicable tax laws;
difficulties in managing or overseeing foreign operations and agents;
complying with laws applicable to international business, such as anti-corruption, trade, foreign currency and maritime laws;
different liability standards;
the price and availability of fuel;
higher levels of credit risk;
difficulties in integrating acquired companies with foreign operations;
uncertainty and changes to political and regulatory regimes as a result of changing social, political, regulatory and economic environments in the
United States and internationally; and
geopolitical conditions, such as national and international conflict, including terrorist acts and the effects of pandemics (such as COVID-19) and
government responses to pandemics.
If we do not correctly anticipate changes in social, political or regulatory conditions or their impact on the transportation industry, we may not alter
our business practices in time to avoid adverse effects. Additionally, the occurrence or consequences of any of these factors may restrict our ability to
operate in the affected region and/or decrease the profitability of our operations in that region.
15
Our suppliers may also be affected by changes in the political and regulatory environment, both in the United States and internationally. Negative
impacts on our suppliers could result in disruptions in the supply and availability of equipment or services needed for our business that could in turn affect
our ability to operate and serve our customers as planned. Additionally, changes to current United States international trade agreements may lead to fewer
goods transported and we may need to restructure certain terms of business with suppliers or customers.
General Risks
Our failure to implement or market new and existing services to existing and potential customers could have an adverse effect on our operations.
We expect to continue expanding our service offerings. In the event we implement new service offerings, we may devote substantial resources to
educating our employees and customers on such offerings with no assurance that a sufficient number of customers will use such additional services. If we
add new services, we may not identify trends correctly or may not be able to bring new services as quickly, effectively or price-competitively as our
competitors. Our failure to implement new services or market any existing or future services to our current customer base and/or new customers could have
a material adverse impact on our operations and profitability.
Our inability to defend our intellectual property could damage our reputation and incur costs that have a negative impact on our operations or
financial condition.
The Company has registered various trademarks and designs in the United States, Mexico and Canada. These marks play a major role in our business
as they strengthen our brand recognition while helping accomplish our marketing strategy. Some of our intellectual property rights related to trademarks,
trade secrets, domain names, copyrights, or other intellectual property could be challenged or invalidated or misappropriated or infringed upon, by third
parties. Our continued efforts to obtain, enforce, protect and defend our intellectual property against a third-party infringement claim may be ineffective
and could result in substantial costs which could adversely impact our corporate reputation, business, results of operations, and financial conditions.
Damage to our reputation through unfavorable publicity or the actions of our employees, certain suppliers or independent contractors could
adversely affect our financial condition.
Our success depends on our ability to consistently deliver operational excellence and strong customer service. Our inability to deliver our services and
solutions as promised on a consistent basis, or our customers having a negative experience or otherwise becoming dissatisfied, can negatively impact our
relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect revenue and earnings
growth. Adverse publicity (whether or not justified) relating to activities by our employees, contractors, suppliers, agents or others with whom we do
business, such as customer service mishaps or noncompliance with laws, could tarnish our reputation and reduce the value of our brand. With the increase
in the use of social media outlets such as Facebook, YouTube, Instagram, LinkedIn and Twitter, adverse publicity can be disseminated quickly and broadly,
making it increasingly difficult for us to effectively respond. This unfavorable publicity could also require us to allocate significant resources to rebuild our
reputation.
16
The market value of our common stock may fluctuate and could be substantially adversely affected by various factors.
We expect that the market price of our common stock will continue to fluctuate due to a variety of factors, many of which are beyond our control.
These factors include, among others:
•
•
•
•
•
•
•
•
•
actual or anticipated variations in earnings, financial or operating performance or liquidity;
changes in industry research analysts’ recommendations or projections;
failure to meet analysts’ and our Company's projections;
general political, social, economic and capital market conditions;
announcements of developments related to our business;
operating and stock performance of other companies deemed to be peers;
actions by government regulators;
news reports of trends, concerns and other issues related to us or our industry, including changes in regulations; and
geopolitical conditions such as acts or threats of terrorism, military conflicts, and the effects of pandemics (such as the coronavirus).
Our common stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market price
declines or market volatility in the future could adversely affect the price of our common stock, and the current market price of our common stock may not
be indicative of future market prices.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
SUPPLEMENTARY ITEM. INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Pursuant to Instructions to Item 401 of Regulation S-K, we have included information on our executive officers in this Part I.
The table sets forth certain information as of February 1, 2022 with respect to each person who is an executive officer of the Company.
Name
David P. Yeager
Phillip D. Yeager
Vincent C. Paperiello
Geoffrey F. DeMartino
Kevin W. Beth
Vava R. Dimond
Michele L. McDermott
Thomas P. LaFrance
Age
68
34
51
44
47
55
51
60
Position
Chairman of the Board of Directors and Chief Executive Officer
President and Chief Operating Officer
President, Intermodal and Chief Solutions Officer
Executive Vice President, Chief Financial Officer and Treasurer
Executive Vice President and Chief Accounting Officer
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Human Resources Officer
Executive Vice President and General Counsel and Corporate Secretary
David P. Yeager has served as our Chairman of the Board since November 2008 and as Chief Executive Officer since March 1995. From March 1995
through November 2008, Mr. Yeager served as Vice Chairman of the Board. From October 1985 through December 1991, Mr. Yeager was President of Hub
City Terminals (Hub Chicago). From 1983 to October 1985, he served as Vice President, Marketing of Hub Chicago. Mr. Yeager founded the St. Louis Hub
in 1980 and served as its President from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and served as its President from 1975 to 1977. Mr.
Yeager received a Masters in Business Administration degree from the University of Chicago Booth School of Business and a Bachelor of Arts degree from
the University of Dayton. Mr. Yeager is the father of Phillip D. Yeager.
17
Phillip D. Yeager was named President and Chief Operating Officer in July 2019. Prior to this appointment, Mr. Yeager served as Chief Commercial
Officer overseeing Intermodal and Truck Brokerage operations as well as sales, pricing, solutions and account management since January 2018. Mr. Yeager
formerly held the role of Executive Vice President, Account Management and Intermodal Operations since January 2016 after serving as Vice President of
Account Management and Business Development from February 2014 to January 2016. Mr. Yeager joined the Company in 2011 as the Director of Strategy
and Acquisitions. Prior to joining the Company, Mr. Yeager served as Assistant Vice President of Commercial Banking at BMO Harris Bank, and as an
investment banking analyst for Lazard Freres & Co. Mr. Yeager earned his Bachelor of Arts degree from Trinity College, and a Master of Business
Administration degree from the University of Chicago Booth School of Business. Mr. Yeager is the son of David P. Yeager.
Vincent C. Paperiello was named President of Intermodal and Chief Solutions Officer in July 2021 after serving as Chief Solutions Officer since July
2019. Since joining the Company in 1993, Mr. Paperiello has held a variety of operational, logistics management and business intelligence positions with
the Company. In his current role, he is responsible for our Intermodal business and our go-to-market analytics organization, ensuring that we are
developing and delivering pricing and solutions that propel our customers’ businesses. Mr. Paperiello is a member of the Professional Pricing Society and
the Intermodal Association of North America, a leading industry trade association representing the combined interest of the intermodal freight industry. Mr.
Paperiello received a Bachelor of Arts degree in History from Western Illinois University and a Master of Business Administration – Finance degree from
DePaul University’s Kellstadt Graduate School of Business.
Geoffrey F. DeMartino has served as Executive Vice President, Chief Financial Officer, and Treasurer since July 2020. In this role Mr. DeMartino has
responsibility for our financial reporting, financial operations, investor relations, debt and equity financing, and corporate development activities. Mr.
DeMartino joined the Company in 2016 as Vice President, Corporate Development and Strategy and led our acquisition and divestiture activities. Prior to
joining the Company he spent over 15 years in various financial roles, including corporate development and investment banking. Mr. DeMartino received a
Bachelor’s degree in Economics from Northwestern University.
Kevin W. Beth was promoted to Executive Vice President and Chief Accounting Officer in July 2020. Mr. Beth joined the Company in October 2003
as Corporate Controller and served as Controller and Assistant Treasurer beginning in March 2007. He has been instrumental in transforming the
Company’s financial systems and leading the accounting organization through the integration of acquisitions, divestures, and implementation of accounting
standards. Mr. Beth is a Certified Public Accountant and held various auditing and corporate accounting positions prior to joining the Company. Mr. Beth
received a Bachelor of Science degree in Accounting from the University of Illinois.
Vava R. Dimond was named an Executive Vice President of the Company in May 2016 and Chief Information Officer in April 2015 after serving as
the Interim Chief Information Officer since September 2014. Ms. Dimond began her career with the Company in June 2013 as the Vice President of
Business Engineering, responsible for overseeing the Company’s Business Intelligence, Business Engineering and Program Management projects and
processes. Previously, Ms. Dimond spent 16 years in the transportation industry and held several leadership positions within Information Technology. Ms.
Dimond earned her Bachelor of Science degree in Economics from South Dakota State University. Ms. Dimond will retire effective March 1, 2022 and will
provide consulting support to the Company through June 30, 2022.
Michele L. McDermott joined the Company in August 2019 as our Chief Human Resources Officer (“CHRO”). Ms. McDermott has nearly 25 years
of experience in human resources and, prior to joining the Company, served as Senior Vice President of Human Resources at Assurance Agency from
October 2015 through July 2019 and in a variety of executive roles at National Express Corporation prior to her employment with Assurance Agency. As
CHRO, Ms. McDermott is responsible for developing the Company’s employees, managing diverse workforces, and implementing strategic plans for
benefits, safety programs and technology systems. Ms. McDermott earned a Bachelor of Science in Business Administration from Lewis University and a
Master of Business Administration, Operations and Finance from DePaul University’s Kellstadt Graduate School of Business. Ms. McDermott is a Society
for Human Resources Management Senior Certified Professional and has received her Senior Professional in Human Resources certification from the HR
Certification Institute.
Thomas P. LaFrance joined the Company as Executive Vice President, General Counsel and Corporate Secretary in August 2021. In this role, Mr.
LaFrance leads the Company’s legal, compliance and governance efforts. Mr. LaFrance has over 30 years of global legal experience in multiple sectors,
including having served as general counsel of General Electric Company's transportation and security technology divisions, as well as senior legal roles at
Wabtec Corporation, National Grid plc, and United Technologies Corporation. Earlier in his career, Mr. LaFrance was a partner at the law firm Goodwin
Proctor. Mr. LaFrance graduated with a Bachelor of Arts degree in Economics from Boston College and received his J.D. from Georgetown University Law
Center.
18
Item 2. PROPERTIES
As of December 31, 2021, we directly, or indirectly through our subsidiaries, operated 43 offices throughout the United States, Canada and Mexico,
including our headquarters in Oak Brook, Illinois. All of our office space except for our headquarters is leased. Most office leases have initial terms of
more than one year, and many include options to renew. While some of our leases expire in the near term, we do not believe that we will have difficulty in
renewing them or in finding alternative office space. We believe that our offices are adequate for the purposes for which they are currently used.
Item 3. LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of our business, including at various times, claims for personal injury and/or property
damage, bankruptcy preference claims, employment-related claims, including putative class actions, and claims regarding freight lost or damaged in transit,
improperly shipped or improperly billed. Some of the lawsuits to which we are a party are covered by insurance and are being defended by our insurance
carriers. Some of the lawsuits are not covered by insurance and we defend those ourselves. We do not believe that the outcome of this litigation will have a
materially adverse effect on our financial position or results of operations. For a discussion of certain specific litigation involving the Company, see Note
15 to the consolidated financial statements under “Legal Matters,” which discussion and note are incorporated herein by reference.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Our Class A Common Stock (“Class A Common Stock”) trades on the Nasdaq Global Select Market tier of the Nasdaq Stock Market under the
symbol “HUBG.” There is no established trading market for shares of our Class B Common Stock (the “Class B Common Stock” together with the Class A
Common Stock, the “Common Stock”).
On February 11, 2022, there were approximately 414 stockholders of record of the Class A Common Stock and in addition, there were an estimated
18,546 beneficial owners of the Class A Common Stock whose shares were held by brokers and other fiduciary institutions. On February 11, 2022, there
were 9 holders of record of our Class B Common Stock.
Issuer Purchases of Equity Securities
On May 23, 2019, our Board of Directors authorized the purchase of up to $100 million of our Class A Common Stock. Under the program, the shares
may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. We did not
purchase any stock under this authorization during the fourth quarter of 2021. The approved share repurchase program does not obligate us to repurchase
any dollar amount or number of shares and the program may be extended, modified, suspended, or discontinued at any time.
We purchased 64,153 shares of Class A Common Stock related to employee withholding upon vesting of restricted stock in the fourth quarter of 2021.
The table below gives information on a monthly basis regarding the number of shares delivered to us by employees to satisfy the mandatory tax
withholding requirement upon vesting of restricted stock during the fourth quarter of 2021:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
10/1/2021 - 10/31/2021
11/1/2021 - 11/30/2021
12/1/2021 - 12/31/2021
Total
409
1,700
62,044
64,153
$
$
$
$
77.76
82.28
79.18
79.26
Maximum Value of
Shares that May Yet
Be Purchased Under
the Plan
(in 000’s)
-
-
-
-
$
$
$
$
-
-
-
75,002
We were incorporated in 1995 and have never paid cash dividends on either the Class A Common Stock or the Class B Common Stock. The
declaration and payment of dividends are subject to the discretion of the Board of Directors. Any determination as to the payment of dividends will depend
upon our results of operations, capital requirements and financial condition of the Company, and such other factors as the Board of Directors may deem
relevant. Accordingly, there can be no assurance that the Board of Directors will declare or pay cash dividends on the shares of Common Stock in the
future. Our certificate of incorporation requires that any cash dividends must be paid equally on each outstanding share of Class A Common Stock and
Class B Common Stock. Our credit facility prohibits us from paying dividends on the Common Stock if there has been, or immediately following the
payment of a dividend there would be, a default or an event of default under the credit facility. We are currently in compliance with the covenants contained
in the credit facility.
20
Performance Graph
The following line graph compares the Company’s cumulative total stockholder return on its Class A Common Stock since December 31, 2016 with
the cumulative total return of the Nasdaq Stock Market Index (NQUSBT) and the Nasdaq Trucking and Transportation Index (NQUSB27707). These
comparisons assume the investment of $100 on December 31, 2016 in each index and in the Company’s Class A Common Stock and the reinvestment of
dividends.
Item 6. RESERVED
21
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019
items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management's Discussion and
Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2020, which is incorporated herein by reference.
EXECUTIVE SUMMARY
We are a leading supply chain solutions provider in North America that offers comprehensive transportation and logistics management services
focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some
of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract. Our transportation services
include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Our logistics services include full
outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, final mile delivery, parcel and
international services.
We service a large and diversified customer base in a broad range of industries, including retail, consumer products and durable goods. We believe our
strategy to offer multi-modal supply chain management solutions serves to strengthen and deepen our relationships with our customers and allows us to
provide a more cost effective and higher service solution.
We provide services in four lines of business. Our intermodal line of business offers high service, nationwide door-to-door intermodal transportation,
providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. We arrange for the
movement of our customers’ freight in one of our approximately 44,000 containers. We contract with railroads to provide transportation for the long-haul
portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals are provided by our
HGT subsidiary and third-parties with whom we contract.
Our logistics business offers a wide range of transportation and logistics management services and technology solutions including shipment
optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing and shipment visibility. We offer multi-
modal transportation services including full truckload, less-than-truckload, intermodal, final mile, railcar, small parcel and international transportation. All
of our services are provided on a non-asset basis, as underlying transportation or warehousing services are provided by other of Hub’s business lines or by
third parties. In late 2020, we acquired NSD which provided us with a final mile delivery capacity.
Our truck brokerage operation offers a full range of trucking transportation on a non-asset basis, as we match customers’ shipping needs with trucking
carriers’ capacity to provide the most effective combination of service and price. Our services include dry van, expedited, less-than-truckload, refrigerated
and flatbed. We substantially increased the size of our brokerage service line, and increased our refrigerated transportation capabilities, through the
acquisition of Choptank Transport, LLC in October 2021 (“Choptank”). Approximately half of our truck brokerage volume is generated from committed
pricing transactions, with the remainder consisting of loads that are priced on a transactional basis.
Our dedicated trucking business line contracts with customers who require high service transportation using equipment dedicated to their needs. We
offer a dedicated fleet of approximately 1,000 tractors and 4,600 trailers to our customers, as well as the driver staffing, management and infrastructure to
operate according to the customer’s high service expectations. Over the last several years we have begun to combine certain aspects of our dedicated and
HGT operations in order to drive efficiency and reduce costs, including a shared services model for driver recruiting, asset management and safety
functions, as well as sharing drivers and equipment between dedicated and HGT.
In 2021, we experienced favorable market conditions for our services. Demand for our services continued to show strength, as North American
consumer spending, particularly on the types of goods that our customers offer, remained robust. Retail inventory levels remain near historically low
levels, indicating a need by our customers to move goods as they restock their distribution centers and stores. The response to the COVID-19 pandemic
caused many changes in consumer behavior, including a propensity for consumers to shift spending from services toward goods, and also to increase
spending on household goods.
Available transportation capacity in North America continues to be constrained by high levels of demand, shortages of available drivers, and
challenges with the production of new tractors and other equipment. These factors resulted in strong demand for our transportation capacity in 2021, as
well as rising prices for our services and those of our competitors.
22
We expect these conditions to continue in 2022. In order to meet customer demand, we have taken several important actions. We are increasing our
capacity to handle additional volume by ordering over 6,500 new containers which we expect will be delivered in 2022. Included in this order is a
significant expansion of our refrigerated intermodal container fleet, as we believe there is a large opportunity to sell this expanded service to our existing
customer base. During 2021, we increased the level of compensation we pay to our drivers in order to increase our hiring and ability to handle additional
intermodal loads and we intend to offer competitive compensation in 2022 to retain and attract drivers. We have seen strong demand for final mile delivery
services as a result of the factors noted above.
We are working on several margin enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty
miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and
improving low profit freight. We use various performance indicators to manage our business. We closely monitor profit margins on a lane-level and
customer-level basis. We also evaluate on-time performance, customer service, cost per load and customer-level accounts receivable as a multiple of daily
sales. Vendor cost changes and vendor service performance are also monitored closely.
During 2021 we also took delivery of a large number of new tractors, and we expect to do the same in 2022. A portion of these new units represent
replacements for older tractors. These replacements will allow us to reduce operating costs as new equipment generally features lower repair and
maintenance costs, while also consuming less fuel per mile operated, which has both financial and environmental benefits. In addition, we recognized
approximately $19 million of gains on the sale of older tractors in 2021 due to the strength in the market for used equipment. We expect this strength in
gains on sales of our older tractors to continue in 2022 though likely not to the same level as 2021.
Uncertainties and risks to our outlook include the following: a slowdown in consumer spending, a shift by consumers to spending on services at the
expense of goods, a significant increase in transportation supply in the marketplace, aggressive pricing actions by our competitors; and any inability to pass
cost increases, such as transportation and warehouse costs, through to our customers, all of which could have a materially negative impact on our revenue,
profitability and cash flow in 2022.
Strategic Transactions
On October 19, 2021, we acquired 100% of the equity interests of Choptank. Total consideration for the transaction was $127.6 million in cash and
the settlement of accounts receivable due from Choptank of $0.3 million. In connection with the acquisition, we granted approximately $22 million of
restricted stock to Choptank's senior management team, which is subject to certain vesting conditions.
On December 9, 2020, we acquired 100% of the equity interests of NSD. Total consideration for the transaction was $105.9 million which consisted
of cash paid of $89.8 million, of which $0.1 million was paid in the second quarter of 2021 as part of the post-closing true-up, and the settlement of Hub’s
accounts receivable due from NSD of $16.1 million.
RESULTS OF OPERATIONS
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table summarizes our revenue by business line (in thousands):
Intermodal
Logistics
Truck brokerage
Dedicated
Total revenue
$
$
2021
Years Ended
December 31,
2,391,494
887,388
688,867
264,634
4,232,383
$
$
23
2020
2,029,186
767,279
431,127
268,052
3,495,644
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:
Revenue
Transportation costs
Gross margin
Costs and expenses:
Salaries and benefits
General and administrative
Depreciation and amortization
Total costs and expenses
Operating income
Revenue
2021
4,232,383
3,632,743
599,640
247,240
76,476
37,467
361,183
238,457
100.0%
85.8%
14.2%
5.9%
1.8%
0.9%
8.6%
5.6%
Years Ended
December 31,
$
$
$
$
2020
3,495,644
3,070,207
425,437
188,777
99,597
31,237
319,611
105,826
100.0%
87.8%
12.2%
5.4%
2.9%
0.9%
9.2%
3.0%
Revenue increased 21.1% to $4.2 billion in 2021 from $3.5 billion in 2020. Intermodal revenue increased 17.9% to $2.4 billion primarily due to a
20.6% increase in revenue per load, partially offset by a 2.2% decrease in volume. Logistics revenue increased 15.7% to $887.4 million primarily due to
growth of our consolidation solutions services and the contribution of our final mile operations, partially offset by the impact of lost customers. Truck
brokerage revenue increased 59.8% to $688.9 million primarily due to a 44.8% increase in revenue per load and a 10.3% increase in volume, which
includes the contribution of Choptank since the acquisition in October 2021. Dedicated’s revenue decreased 1.3% to $264.6 million primarily due to the
impact of business we exited, partially offset by growth with new accounts.
Transportation Costs
Transportation costs increased to $3.6 billion in 2021 from $3.1 billion in 2020. Transportation costs in 2021consisted of purchased transportation
costs of $2.9 billion and equipment and driver related costs of $687.0 million. Transportation costs in 2020 consisted of purchased transportation costs of
$2.4 billion and equipment and driver related costs of $643.5 million. The 21.4% increase in purchased transportation costs was primarily due to increased
rail costs, increased fuel costs, increased truck brokerage volume, higher third-party carrier costs and the impact of the NSD and Choptank acquisitions,
partially offset by decreased repositioning costs and decreased container stacking charges. Equipment and driver related costs increased 6.8% in 2021
primarily due to higher driver wages and increased repairs and maintenance expense, partially offset by decreased equipment depreciation expense, and
decreased usage of our internal drayage resources to 50% of total drayage moves in 2021 from 56% in 2020.
Gross Margin
Gross margin increased 40.9% to $599.6 million in 2021 from $425.4 million in 2020. The $174.2 million gross margin increase was the result of
increases in intermodal, logistics, and truck brokerage, partially offset by a decrease in dedicated. Intermodal gross margin increased primarily due to a
20.6% increase in revenue per load, partially offset by a 2.2% decrease in volume, increased purchased transportation costs, and internal drayage costs.
Logistics gross margin increased primarily due to yield management, higher revenue, and the contribution of final mile operations, partially offset by
higher warehousing and transportation costs. Truck brokerage gross margin increased due to revenue per load growth in both committed and transactional
freight, a 10.3% increase in volume, including the contribution of Choptank, partially offset by the impact of higher purchased transportation costs.
Dedicated gross margin decreased due to business we exited, partially offset with growth from new customers, lower insurance costs and lower third-party
carrier costs.
As a percentage of revenue, gross margin increased to 14.2% in 2021 from 12.2% in 2020 due to the aforementioned factors. Intermodal gross margin
as a percentage of revenue increased 350 basis points. Logistics gross margin as a percentage of revenue increased 170 basis points. Truck brokerage gross
margin as a percentage of revenue decreased 190 basis points. Dedicated gross margin as a percentage of revenue decreased 240 basis points.
24
CONSOLIDATED OPERATING EXPENSES
Salaries and Benefits
Salaries and benefits increased to $247.2 million in 2021 from $188.8 million in 2020. As a percentage of revenue, salaries and benefits increased to
5.9% in 2021 from 5.4% in 2020. The increase of $58.5 million was primarily due the addition of NSD and Choptank, increases in employee bonuses of
$36.2 million, salaries of $6.5 million, payroll taxes of $4.7 million, employee benefits of $4.3 million, commissions of $3.8 million and restricted stock
expense of $3.0 million. Headcount as of December 31, 2021 and 2020 was 2,304 and 1,989, respectively, which excludes driver headcount, the costs for
which are included in transportation costs. The increase in headcount is due primarily to the addition of Choptank employees.
General and Administrative
General and administrative expenses decreased to $76.5 million in 2021 from $99.6 million in 2020. As a percentage of revenue, these expenses
decreased to 1.8% in 2021 from 2.9% in 2020.
The decrease of $23.1 million in general and administrative expense was primarily due to gains on sales of transportation equipment of $19.2 million,
which was an increase of $20.1 million compared to 2020, as well as decreases of $5.9 million related to non-reoccurring donations of refrigerated trailers
in support of COVID-19 efforts made in 2020 and $2.2 million in professional services related primarily to a consulting project in 2020. The decreases
were partially offset by an increase in legal claim expense.
Depreciation and Amortization
Depreciation and amortization increased to $37.5 million in 2021 from $31.2 million in 2020. This increase related primarily to the amortization of
intangibles related to the acquisitions of both NSD and Choptank as well as increases in depreciation of computer software. This expense as a percentage of
revenue remained consistent at 0.9% in both 2021 and 2020.
Other Expense, Net
Other expense decreased to $7.5 million in 2021 from $9.7 million in 2020 due to less interest expense caused by less average borrowings and lower
average interest rates on existing borrowings.
Provision for Income Taxes
Provision for income taxes increased to $59.4 million in 2021 from $22.5 million in 2020 due primarily to an increase in income.
Our effective tax rate was 25.7% in 2021 and 23.5% in 2020. See Note 7, Income Taxes, in our consolidated financial statements for a detailed
reconciliation of our effective tax rate. The increase to the tax rate in 2021 compared to 2020 is primarily related to two factors. In 2020, state law changes
prompted us to amend certain state income tax returns that provided refunds and a significant benefit to the effective tax rate. That rate benefit did not
repeat in 2021. Additionally, our federal and state tax incentives were smaller in 2021 than in 2020.
Net Income
Net income increased to $171.5 million in 2021 from $73.6 million in 2020 due primarily to increases in revenue and gross margin, partially offset by
higher costs, operating expenses and income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Our financing and liquidity strategy is to fund operating cash payments through cash received from the provision of services, cash on hand, and to a
lesser extent, from cash received from the sale of equipment. As of December 31, 2021, we had $159.8 million of cash and $24.3 million of restricted
investments. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. Payments for our
other investing activities, such as the construction of our office buildings and our capitalized technology investments, have been funded by cash on hand or
cash flows from operations. We have not historically used our Credit Facility to fund our operating or investing cash needs, though it is available to fund
future cash requirements as needed. In the last three years we have funded our business acquisitions from cash on hand, though in the future we may elect
to fund these activities through a combination of cash on hand, borrowings on our credit facility, or from issuance of secured or unsecured debt. Cash used
in financing activities has generally been funded by cash from operations or cash on hand. Based on past performance and current expectations, we believe
cash on hand and cash received from the provision of services, along with other financing sources, will provide us the necessary capital to fund transactions
and achieve our planned growth for the next twelve months and the foreseeable future.
25
Cash provided by operating activities for the year ended December 31, 2021 was approximately $252.8 million, which resulted primarily from income
of $171.5 million plus non-cash charges of $127.5 million, partially offset by changes in operating assets and liabilities of $46.2 million.
Cash provided by operating activities totaled $252.8 million in 2021 compared to $175.0 million in 2020. The $77.8 million increase in cash flow was
primarily due to an increase in net income of $97.9 million and a sequential increase in accounts payable of $72.9 million. These increases were partially
offset by a sequential increase in accounts receivable of $68.3 million and by additional gains on the sale of equipment of $20.1 million in 2021.
Net cash used in investing activities for the year ended December 31, 2021 was $210.1 million which resulted from capital expenditures of $133.0
million and acquisition payments related to NSD and Choptank of $122.4 million partially offset by proceeds received of $45.2 million from the sale of
equipment. Capital expenditures of $133.0 million included tractor purchases of $51.9 million, container purchases of $50.8 million, technology
investments of $15.6 million, construction spend for our corporate headquarters of $11.1 million, other transportation equipment purchases of $3.2 million
and the remainder for leasehold improvements.
Capital expenditures increased by approximately $17.6 million in 2021 as compared to 2020. The 2021 increase was due to increases in tractor
purchases of $20.0 million, container purchases of $11.5 million and technology investments of $2.2 million. These increases were partially offset by
decreased spend on our corporate headquarters of $8.8 million, less purchases of other transportation equipment of $6.7 million and less spend for
leasehold improvements.
In 2022, we estimate capital expenditures will range from $240 million to $270 million. We expect transportation equipment purchases to range from
$210 million to $230 million and building and technology investments will range from $30 million to $40 million. We plan to fund these expenditures with
a combination of cash and debt.
Net cash used in financing activities for the year ended December 31, 2021 was $7.4 million which includes repayments of long-term debt of $107.6
million, cash for stock tendered for payments of withholding taxes of $9.1 million and finance lease payments of $2.7 million partially offset by the
proceeds from the issuance of debt $112.0 million. Debt incurred in 2021 was used to fund the purchase of transportation equipment.
The $14.9 million decrease in cash used in financing activities for 2021 versus 2020 was primarily due to the decrease in repayments of long-term
debt of $91.1 million partially offset by less proceeds from the issuance of debt of $75.5 million and an increase in cash for stock related to employee
withholding taxes of $1.2 million.
In 2021, cash paid for income taxes was $58.6 million, of which $55.6 million related to 2021 and $3.0 million related to 2020. In 2022, we expect to
pay an additional $6.5 million of cash for taxes related to 2021. The 2021 income tax expense of $59.4 million is less than the amount paid for 2021
income taxes of $55.6 million and the anticipated $6.5 million to be paid in 2022 that relates to 2021. This is due to net unfavorable book to tax differences
causing 2021 taxable income to exceed 2021 financial statement income before taxes.
See Note 10 of the consolidated financial statements for details related to interest rates and commitment fees.
We have standby letters of credit that expire in 2022. As of December 31, 2021, our letters of credit were $41.3 million.
As of December 31, 2021, we had no borrowings under our credit facility and our unused and available borrowings were $308.7 million. Our unused
and available borrowings were $312.3 million as of December 31, 2020. We believe our line of credit is adequate to meet our cash needs. Refer to Note 17
"Subsequent Event" for information regarding the new credit agreement. We were in compliance with our debt covenants as of December 31, 2021.
26
CONTRACTUAL OBLIGATIONS
Aggregated information about our obligations and commitments to make future contractual payments such as debt and lease obligations as of
December 31, 2021 is presented in the following table (in thousands).
Future Payments Due:
Operating
Leases
Finance
Leases
Debt
Interest
on Debt
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
$
$
12,253
9,904
8,133
6,842
5,320
6,436
48,888
$
$
1,257
-
-
-
-
-
1,257
$
$
97,273
72,971
48,031
37,257
19,220
-
274,752
$
$
5,084
2,687
1,371
630
131
-
9,903
$
$
Total
115,867
85,562
57,535
44,729
24,671
6,436
334,800
As of February 15, 2022, Hub signed various operating and finance leases which had not commenced as of December 31, 2021. Based on the present
value of the lease payments, the estimated right-of-use (“ROU”) assets and lease liabilities related to these contracts will total approximately $3.0 and $2.0
million for operating and finance leases, respectively.
Deferred Compensation
Under our Nonqualified Deferred Compensation Plan (the “Plan”), participants can elect to defer certain compensation. Payments under the Plan are
due as follows (in thousands):
Future Payments Due:
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
$
$
4,923
2,375
1,747
2,092
1,276
11,687
24,100
The above future payments are fully funded by our restricted investments comprised of mutual funds as noted in Note 14.
27
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make
estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated
financial statements. We have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to
materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described
below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates. The following is a brief discussion of the more significant accounting policies and estimates. These
critical accounting policies are further discussed in Note 1 of the consolidated financial statements, which describes these and our other significant
accounting policies.
Revenue Recognition
In accordance with the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers, our significant accounting
policy for revenue is as follows:
Revenue is recognized when we transfer services to our customers in an amount that reflects the consideration we expect to receive. We account for a
contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has
commercial substance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control to
the customer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on
the extent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services,
which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are both
imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Further, in most cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by
the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for
example, on-time delivery, handling freight loss and damage claims, setting appointments for pick-up and delivery and tracing shipments in transit. We
have discretion in setting prices for our services and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from
multiple suppliers for the services ordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support
reporting revenue on a gross basis for most of our revenue.
Allowance for Uncollectible Trade Accounts
We extend credit to customers after a review of each customer’s credit profile and history. An allowance for uncollectible trade accounts has been
established through an analysis of the accounts receivable aging, an assessment of collectability based on historical trends and an evaluation based on
current economic conditions. Annually we review, in hindsight, the percentage of receivables that are collected that aged over one year, those that are not
one year old and the accounts that went into bankruptcy. We reserve for accounts less than one year old based on specifically identified uncollectible
balances and our historic collection percentage, including receivable adjustments charged through revenue for items such as billing disputes. In establishing
a reserve for certain account balances specifically identified as uncollectible, we consider the aging of the customer receivables, the specific details as to
why the receivable has not been paid, the customer’s current and projected financial results, the customer’s ability to meet and sustain its financial
commitments, the positive or negative effects of the current and projected industry outlook and the general economic conditions. Our historical collection
percentage has been over 98% for receivables that are less than one year old. Changes in our historical collection percentages of receivables that are less
than one year old either positively or negatively, based on our collection history, would affect our calculated allowance for uncollectible trade accounts.
Once a receivable ages over one year, our collection percentage is much lower, thus a separate allowance is calculated for open receivables that have
aged over one year. We also review our collection percentage after a customer has gone into bankruptcy. Although these collection percentages may change
both negatively and positively, since only a small portion of our receivables are aged over one year or are involved in a bankruptcy case, a large change in
either of those collection percentages would not have a material impact on our financial statements. Our level of reserves for customer accounts receivable
fluctuates depending upon all the factors mentioned above. Historically, our reserve for uncollectible accounts has approximated actual accounts written off
and we do not expect the reserve for uncollectible accounts to change significantly relative to our accounts receivable balance. The allowance for
uncollectible accounts is reported on the balance sheet in net accounts receivable. Recoveries of receivables previously charged off are recorded when
received.
28
Claims Accruals
We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo damage. Certain
insurance arrangements include high SIR limits or deductibles applicable to each claim. We have umbrella policies to limit our exposure above these SIR
limits and deductibles.
Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and
severity of the claims and analyses provided by third-party claims administrators, as well as legal and regulatory factors. Our safety and claims personnel
work directly with representatives from the insurance companies and third-party administrators to continually update the estimated cost of each claim. The
ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available.
Accordingly, we use actuarial methods to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the
use of loss-development factors based on our historical claims experience. In doing so, the recorded liability considers future claims growth and provides
an allowance for incurred-but-not-reported claims. Changes in loss development factors caused by differences between the estimates of future medical
costs, future severity trend factors and future legal costs could materially change our recorded claim accrual liability. Our claim accrual liability is classified
as either current or non-current in the consolidated balance sheet based on an estimate of when the claims are expected to be paid. We do not discount our
estimated losses. In addition, we record receivables for amounts expected to be reimbursed for payments made in excess of self-insurance levels on covered
claims.
OUTLOOK, RISKS AND UNCERTAINTIES
Business Combinations/Divestitures
We believe that any future acquisitions or divestitures that we may make could significantly impact financial results. Financial results most likely to
be impacted include, but are not limited to, revenue, gross margin, salaries and benefits, general and administrative expenses, depreciation and
amortization, interest expense, net income and our debt level.
Revenue
We believe that the performance of our railroad vendors and a severe or prolonged slow-down of the economy are the most significant factors that
could negatively influence our revenue growth rate. Should the rail industry experience a prolonged disruption in service, we believe our intermodal
business would likely be negatively impacted. Other factors that could negatively influence our growth rate include, but are not limited to, the elimination
of fuel surcharges, lower fuel prices, the entry of new competitors, aggressive pricing by new or existing competitors, poor customer retention, inadequate
drayage and intermodal service and inadequate equipment supply and the ongoing coronavirus outbreak or other health concerns.
Gross Margin
We expect fluctuations in gross margin as a percentage of revenue from quarter-to-quarter caused by various factors including, but not limited to,
competitor pricing actions, changes in our business mix, start-up costs for new business, changes in logistics services between transactional business and
management fee business, changes in truck brokerage services between transaction, committed and other types of service, insurance and claim costs, driver
recruiting costs, driver compensation changes, impact of regulations on drayage costs, trailer and container capacity, vendor cost increases, fuel costs,
equipment depreciation and operating costs, equipment utilization, transportation industry growth, intermodal industry service levels, accessorials,
competitive pricing and related changes in accounting estimates.
Salaries and Benefits
We estimate that salaries and benefits as a percentage of revenue could fluctuate from quarter-to-quarter as there are timing differences between
volume increases and changes in levels of staffing. Factors that could cause the percentage not to stay in the recent historical range include, but are not
limited to, revenue growth rates significantly higher or lower than forecasted, a management decision to invest in additional personnel to stimulate new or
existing businesses, changes in customer requirements, changes in our operating structure, availability of labor supply at current rates, severance, employee
insurance costs, how well we perform against our incentive-compensation and other bonus goals, and changes in railroad intermodal service levels which
could result in a lower or higher cost of labor per move.
29
General and Administrative
We believe there are several factors that could cause general and administrative expenses to fluctuate as a percentage of revenue. As customer
expectations and the competitive environment require the development of new technology interfaces and the restructuring of our information systems and
related platforms, we believe there could be significant expenses incurred. Other factors that could cause general and administrative expense to fluctuate
include, but are not limited to, changes in insurance premiums, technology expense related to software and services, claim expense, bad debt expense,
professional services expense and costs related to acquisitions or divestitures. Additionally, the gains or losses on sales of used assets can result in
fluctuating general and administrative expenses.
Depreciation and Amortization
We operate tractors and utilize containers, trailers and chassis in connection with our business. This equipment may be purchased or leased as part of
an operating or financing lease. In addition, we rent equipment from third parties under short term rental arrangements. Equipment which is purchased is
depreciated on the straight-line method over the estimated useful life. We anticipate additional amortization expense due to recent and future acquisitions.
Impairment of Property and Equipment, Goodwill and Indefinite-Lived Intangibles
On an ongoing basis, we assess the realizability of our assets. If, at any point during the year, we determine that an impairment exists, the carrying
amount of the asset is reduced by the estimated impairment with a corresponding charge to earnings which could have a material adverse impact on
earnings.
Other Expense
We expect interest expense to increase in 2022 because we financed our 2021 tractor and container purchases with debt and we expect to incur debt
for a significant portion of our 2022 capital expenditures. Factors that could cause a change in interest expense include, but are not limited to, change in
interest rates, change in investments, funding working capital needs, funding capital expenditures, funding an acquisition and purchase of treasury stock.
Provision for Income Taxes
Based on current tax legislation, we estimate that our effective tax rate will be between 24% and 26% in 2022.
In the normal course of business, we are audited by federal, state, and foreign tax authorities, and are periodically challenged regarding the amount of
taxes due. These challenges relate to the timing and amount of deductions and the allocation of income among various tax jurisdictions. We believe our tax
positions comply with applicable tax law and we intend to defend our positions. In evaluating the exposure associated with various tax filing positions, we
record reserves for uncertain tax positions in accordance with U.S. GAAP based on the technical support for the positions, our past audit experience with
similar situations, and potential interest and penalties related to such matters. Our financial results and effective tax rate in any given period could be
impacted if, upon final resolution with taxing authorities, we prevail on positions for which reserves have been established, or we are required to pay
amounts that exceed established reserves.
Significant judgment is required in determining and assessing the impact of complex tax laws and certain tax-related contingencies on our provision
for income taxes. As part of our calculation of the provision for income taxes, we assess whether the benefits of our tax positions are at least more likely
than not to be sustained upon audit based on the technical merits of the tax position. For tax positions that are not more likely than not to be sustained upon
audit, we accrue the largest amount of the benefit that is not more likely than not to be sustained in our financial statements. Such accruals require us to
make estimates and judgments, whereby actual results could vary materially from these estimates. Further, years may elapse before a particular matter for
which we have established an accrual is audited and resolved or its statute of limitations expires. See Note 7, Income Taxes, in our consolidated financial
statements for a discussion of our current unrecognized tax benefits.
30
Realizability of Deferred Tax Assets
We account for income taxes under the asset and liability method of ASC 740. Our deferred tax assets and liabilities represent items that will result in
tax deductions or taxable income in future years for which we have already recorded the related tax expense or benefit in our income statement. Deferred
tax assets and liabilities are a result of timing differences between when items are recognized in our income tax returns and when they are recognized on
our consolidated income statement.
Each quarter, we assess the likelihood that deferred tax assets will be recovered from the reversal of timing differences or from future taxable income.
A valuation allowance is established if we feel that the recovery of the deferred tax asset does not meet the more-likely-than-not threshold. If a valuation
allowance is established, an expense is recorded as part of our income tax provision. In determining whether a valuation allowance is warranted, we
evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods, expected future deductions and tax strategies
that could potentially enhance the likelihood of realization of a deferred tax asset.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates on our bank line of credit which may adversely affect our results of operations and
financial condition.
The Company has both fixed and variable rate debt as described in Note 10 to the Consolidated Financial Statements. Any material increase in market
interest rates would not have a material impact on the results of operations for the year ended December 31, 2021.
Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of
operations, or cash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the year ended
December 31, 2021. Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate
movements of foreign currencies would have on our future costs or on future cash flows we would receive from our foreign investment. To date, we have
not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in
foreign currency exchange rates. We do not use financial instruments for trading purposes.
31
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm (PCAOB ID:42)
Consolidated Balance Sheets - December 31, 2021 and December 31, 2020
Consolidated Statements of Income and Comprehensive Income – Years ended December 31, 2021, December 31, 2020 and December 31,
2019
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2021, December 31, 2020 and December 31, 2019
Consolidated Statements of Cash Flows – Years ended December 31, 2021, December 31, 2020 and December 31, 2019
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
33
34
35
36
37
38
S-1
32
To the Stockholders and the Board of Directors of Hub Group, Inc.
Opinion on the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Hub Group, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements
of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and
financial statement schedule listed in the Index at Item 15(b) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework), and our report dated February 26, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on
our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the account or disclosure to which it
relates.
Claims Accruals
Description of the
Matter
At December 31, 2021, the Company’s aggregate accrued liability related to auto and workers’ compensation claims, inclusive of amounts
expected to be paid above its self-insured retention limits, was $30.8 million. As explained in Note 1 of the consolidated financial statements,
the Company recognizes a liability at the time of an incident based upon the nature and severity of the claim and analyses provided by third-
party claims administrators. The Company utilizes actuarial methods to estimate this liability.
Auditing the Company's claims accruals is complex due to the uncertainty associated with the claims, the application of significant
management judgment, and the use of actuarial methods. In addition, the estimate of the accrual can fluctuate based on the assumptions used
in the actuarial studies, including the frequency and severity of claims, the loss development factors for existing claims and the estimates of
incurred but not reported claims. These assumptions have a significant effect on the claims accruals.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the claims accrual process.
For example, we tested the controls over management’s assessment of the assumptions and underlying data used in the determination of the
measurement and valuation of the reserve.
To evaluate the claims accruals, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims
data. Furthermore, we involved our actuarial specialist to assist in our evaluation of the methodologies applied and significant assumptions
used by the Company in determining the calculated liability. We then compared the Company’s recorded liability amount to a range which
our actuarial specialist developed based on independently selected assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Chicago, Illinois
February 25, 2022
33
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable trade, net
Other receivables
Prepaid taxes
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
Restricted investments
Property and equipment, net
Right-of-use assets - operating leases
Right-of-use assets - financing leases
Other intangibles, net
Goodwill, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade
Accounts payable other
Accrued payroll
Accrued other
Lease liability - operating leases
Lease liability - financing leases
Current portion of long-term debt
TOTAL CURRENT LIABILITIES
Long-term debt
Non-current liabilities
Lease liability - operating leases
Lease liability - financing leases
Deferred taxes
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued or outstanding in 2021 and 2020
Common stock
Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2021 and 2020; 33,907,734 shares outstanding in
2021 and 33,549,708 shares outstanding in 2020
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2021 and 2020
Additional paid-in capital
Purchase price in excess of predecessor basis, net of tax benefit of $10,306
Retained earnings
Accumulated other comprehensive loss
Treasury stock; at cost, 7,317,058 shares in 2021 and 7,675,084 shares in 2020
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
The accompanying notes to consolidated financial statements are an integral part of these statements.
34
December 31,
2021
2020
$
$
$
159,784
701,512
3,022
2,191
27,779
894,288
24,256
681,451
44,036
1,252
196,672
576,913
18,426
2,437,294
424,923
12,493
56,938
82,827
11,364
1,251
97,273
687,069
177,479
41,572
34,916
-
155,944
124,506
518,975
1,265
1,336
26,753
672,835
23,353
671,101
43,573
3,557
163,953
508,555
18,469
2,105,396
285,320
12,680
23,044
102,613
10,093
1,793
93,562
529,105
176,797
42,910
36,328
8
162,325
-
-
412
7
189,256
(15,458 )
1,424,634
(207 )
(258,330 )
1,340,314
2,437,294
$
412
7
186,058
(15,458 )
1,253,160
(191 )
(266,065 )
1,157,923
2,105,396
$
$
$
$
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
$
$
$
$
$
2021
Years Ended December 31,
2020
2019
$
4,232,383
3,632,743
599,640
$
3,495,644
3,070,207
425,437
3,668,117
3,147,047
521,070
247,240
76,476
37,467
361,183
238,457
(7,307 )
5
(245 )
(7,547 )
230,910
59,436
188,777
99,597
31,237
319,611
105,826
(9,746 )
403
(383 )
(9,726 )
96,100
22,541
171,474
$
73,559
$
(16 )
(5 )
171,458
$
73,554
$
5.13
5.06
$
$
33,434
33,892
2.22
2.19
$
$
33,180
33,543
235,963
104,206
28,481
368,650
152,420
(10,994 )
2,103
341
(8,550 )
143,870
36,699
107,171
(4 )
107,167
3.22
3.20
33,284
33,480
Revenue
Transportation costs
Gross margin
Costs and expenses:
Salaries and benefits
General and administrative
Depreciation and amortization
Total costs and expenses
Operating income
Other income (expense):
Interest expense
Interest income
Other, net
Total other income (expense)
Income from continuing operations before income taxes
Income tax expense
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustments
Total comprehensive income
Earnings per share net income
Basic
Diluted
Basic weighted average number of shares outstanding
Diluted weighted average number of shares outstanding
The accompanying notes to consolidated financial statements are an integral part of these statements.
35
HUB GROUP, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except shares)
Purchase
Price
of Excess of
Additional Predecessor
Paid-in
Amount Capital
419 $
-
172,220 $
-
Basis, Net
of Tax
-
Class A & B
Common Stock
Shares
Issued
41,887,088 $
-
Accumulated
Other
Retained Comprehensive
Earnings
Income
Treasury
Stock
(15,458 ) $ 1,072,456 $
-
Shares
Amount
Total
(182 ) (7,431,083 ) $ (248,621 ) $
(24,998 )
(626,320 )
-
980,834
(24,998 )
-
-
-
-
-
-
-
-
-
-
-
(8,869 )
16,286
-
-
-
-
-
-
-
-
-
-
107,171
(26 )
-
-
-
-
-
(98,260 )
(3,984 )
(3,984 )
284,775
-
-
-
8,869
-
-
-
-
16,286
107,171
(26 )
-
41,887,088 $
-
419 $
-
179,637 $
-
-
(15,458 ) $ 1,179,601 $
(4 )
(4 )
(186 ) (7,870,888 ) $ (268,734 ) $ 1,075,279
-
-
-
-
-
-
-
-
-
-
-
(10,632 )
17,053
-
-
-
-
-
-
-
-
73,559
-
(148,242 )
(7,963 )
(7,963 )
-
-
-
344,046
-
-
10,632
-
-
-
17,053
73,559
-
41,887,088 $
-
419 $
-
186,058 $
-
-
(15,458 ) $ 1,253,160 $
(5 )
(5 )
(191 ) (7,675,084 ) $ (266,065 ) $ 1,157,923
-
-
-
-
-
-
-
-
-
-
-
(16,858 )
20,056
-
-
-
-
-
-
-
(134,329 )
(9,123 )
(9,123 )
-
-
171,474
-
-
-
492,355
-
-
16,858
-
-
-
20,056
171,474
-
41,887,088 $
-
419 $
-
189,256 $
-
-
(15,458 ) $ 1,424,634 $
(16 )
(16 )
(207 ) (7,317,058 ) $ (258,330 ) $ 1,340,314
-
-
Balance December 31, 2018
Purchase of treasury shares
Stock tendered for payments of
withholding taxes
Issuance of restricted stock awards,
net of forfeitures
Share-based compensation expense
Net income
Adoption of ASC 842
Foreign currency translation
adjustment
Balance December 31, 2019
Stock tendered for payments of
withholding taxes
Issuance of restricted stock awards,
net of forfeitures
Share-based compensation expense
Net income
Foreign currency translation
adjustment
Balance December 31, 2020
Stock tendered for payments of
withholding taxes
Issuance of restricted stock awards,
net of forfeitures
Share-based compensation expense
Net income
Foreign currency translation
adjustment
Balance December 31, 2021
The accompanying notes to consolidated financial statements are an integral part of these statements.
36
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred taxes
Compensation expense related to share-based compensation plans
(Gain) loss on sale of assets
Other operating activities
Changes in operating assets and liabilities, net of acquisitions:
Restricted investments
Accounts receivable, net
Prepaid taxes
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses
Non-current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of equipment
Purchases of property and equipment
Acquisitions, net of cash acquired
Proceeds from the disposition of discontinued operations
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of debt
Repayments of long-term debt
Stock tendered for payments of withholding taxes
Purchase of treasury stock
Finance lease payments
Net cash used in financing activities
2021
Years Ended December 31,
2020
2019
$
171,474
$
73,559
$
107,171
130,629
(3,992 )
20,056
(19,173 )
-
(903 )
(115,568 )
(856 )
(647 )
(2,883 )
78,448
9,686
(13,436 )
252,835
45,177
(132,952 )
(122,360 )
-
(210,135 )
112,001
(107,608 )
(9,123 )
-
(2,682 )
(7,412 )
123,679
7,463
17,053
907
6,385
(752 )
(47,219 )
(707 )
(2,508 )
(2,177 )
5,594
(4,408 )
(1,915 )
174,954
3,289
(115,306 )
(84,845 )
-
(196,862 )
187,475
(198,741 )
(7,963 )
-
(3,066 )
(22,295 )
116,887
1,821
16,286
(745 )
-
(3,365 )
32,732
(14 )
3,447
(3,786 )
(14,933 )
(122 )
(870 )
254,509
10,025
(94,847 )
(734 )
19,439
(66,117 )
56,494
(105,653 )
(3,984 )
(24,998 )
(2,954 )
(81,095 )
Effect of exchange rate changes on cash and cash equivalents
(10 )
(20 )
(3 )
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents beginning of the year
Cash and cash equivalents end of the year
Supplemental disclosures of cash paid for:
Interest
Income taxes
35,278
124,506
159,784
7,602
58,593
$
$
$
(44,223 )
168,729
124,506
9,458
18,388
$
$
$
107,294
61,435
168,729
11,262
40,289
$
$
$
The accompanying notes to consolidated financial statements are an integral part of these statements.
37
HUB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Description of Business and Summary of Significant Accounting Policies
Business: Hub Group, Inc. (“Hub”, “we”, “us” or “our”) is a leading supply chain solutions provider that offers comprehensive transportation and
logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight
transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with
whom we contract. Our transportation services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional
trucking. Our logistics services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and
fulfillment, final mile delivery, parcel and international services.
On October 19, 2021, we acquired Choptank Transport, LLC ("Choptank") and on December 9, 2020, we acquired NonstopDelivery, LLC (“NSD”).
Refer to Note 4 ”Aquisitions“ for additional information.
Principles of Consolidation: The consolidated financial statements include our accounts and all entities in which we have more than a 50% equity
ownership or otherwise exercise unilateral control. All significant intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents: We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of
December 31, 2021 and 2020, our cash and temporary investments were with high quality financial institutions in demand deposit accounts (“DDAs”),
savings accounts and an interest-bearing checking account.
Accounts Receivable and Allowance for Uncollectible Accounts: On January 1, 2020, we adopted ASU 2016-13 Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which replaces the incurred loss methodology with an expected loss
methodology that is referred to as the Current Expected Credit Loss (“CECL”). The measurement of expected credit losses under the CECL methodology is
applicable to financial assets measured at amortized cost, including trade receivables. The impact of adopting the standard was immaterial. In accordance
with the standard, trade receivables are reported at amortized cost net of the allowance for credit losses.
The allowance for credit losses is a valuation account that is deducted from the trade receivables’ amortized cost basis to present the net amount
expected to be collected on the receivables. Trade receivables are charged off against the allowance when we believe the uncollectibility of a receivable
balance is confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management continuously reviews and assesses the environment, especially with the COVID-19 pandemic, and its potential impact on the credit
worthiness and collectability of our accounts receivable with customers most affected by the COVID-19 pandemic. Our allowance for credit losses is
presented in the allowance for uncollectible trade accounts and is immaterial at December 31, 2021 and 2020. The allowance for uncollectible trade
accounts also includes estimated adjustments to revenue for items such as billing disputes. Our reserve for uncollectible accounts was approximately $20.1
million and $8.3 million as of December 31, 2021 and 2020, respectively. Receivables are written off once collection efforts have been exhausted.
Recoveries of receivables previously charged off are recorded when received.
Property and Equipment: Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line
method at rates adequate to depreciate the cost of the applicable assets over their expected useful lives: building and improvements, up to 40 years;
leasehold improvements, the shorter of useful life or lease term; computer equipment and software, up to 10 years; furniture and equipment, up to 10 years;
and transportation equipment up to 16 years. Direct costs related to internally developed software projects are capitalized and amortized over their expected
useful life on a straight-line basis not to exceed 10 years. Interest is capitalized on qualifying assets under development for internal use. Maintenance and
repairs are charged to operations as incurred and major improvements are capitalized. The cost of assets retired or otherwise disposed of and the
accumulated depreciation thereon are removed from the accounts with any gain or loss realized upon sale or disposal charged or credited to operations. We
review long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the
event that the undiscounted future cash flows resulting from the use of the asset is less than the carrying amount, an impairment loss equal to the excess of
the assets carrying amount over its fair value, less cost to dispose, is recorded.
38
Capitalized Internal Use Software and Cloud Computing Costs: We capitalize internal and external costs, which include costs related to the
development of our cloud computing or hosting arrangements, incurred to develop internal use software per ASC Subtopic 350-40. Internal use software
has both the of the following characteristics: the software is acquired, internally developed, or modified solely to meet our needs and during the
development or modification, no substantive plan exists or is being developed to market the software externally. Only costs incurred during the application
development stage and costs to develop or obtain software that allows for access to or conversion of old data by new systems are capitalized. Capitalization
of costs begins when the preliminary project stage is complete, management has committed to funding the project and it is probable the project will be
completed, and the software will be used to perform its intended function. The measurement of the costs to capitalize include fees paid to third parties,
costs incurred to obtain software from third parties, travel expenses incurred by employees in their duties associated with developing software, payroll
related costs for employees who spend time directly on the project and interest costs incurred while developing internal-use software or implementing a
hosting arrangement. Capitalization ceases no later than when the project is substantially complete and ready for its intended use, after all substantial
testing is complete.
Goodwill and Other Intangibles: Goodwill represents the excess of purchase price over the fair market value of net assets acquired in connection with
our business combinations. Goodwill and intangible assets that have indefinite useful lives are not amortized but are subject to annual impairment tests.
We test goodwill for impairment annually in the fourth quarter or when events or changes in circumstances indicate the carrying value of this asset
might exceed the current fair value. We test goodwill for impairment at the reporting unit level. We only have one reporting unit. We assess qualitative
factors such as current company performance and overall economic factors to determine if it is more-likely-than-not that the fair value of our reporting unit
was less than its carrying value and whether it is necessary to perform the quantitative goodwill impairment test. In the quantitative goodwill test, a
company compares the carrying value of a reporting unit to its fair value. If the fair value of the reporting unit is less than the carrying amount, then a
goodwill impairment charge will be recognized in the amount by which carrying amount exceeds fair value, limited to the total amount of goodwill
allocated to that reporting unit. We performed our annual assessment in the fourth quarter of 2021 and 2020 as required and determined it was not more-
likely-than-not that the fair value of our reporting unit was less than its carrying value.
We evaluate the potential impairment of finite-lived acquired intangible assets when impairment indicators exist. If the carrying value is no longer
recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and
the fair value of the asset.
Claims Accruals: We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo
damage. Certain insurance arrangements include high self-insurance retention limits or deductibles applicable to each claim. We have umbrella policies to
limit our exposure to large claim costs.
Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and
severity of the claims and analyses provided by third-party claims administrators, as well as legal and regulatory factors. Our safety and claims personnel
work directly with representatives from the insurance companies to continually update the estimated cost of each claim. The ultimate cost of a claim
develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use an
actuarial method to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-
development factors based on our historical claims experience. In doing so, the recorded liability factors in future growth of claims and an allowance for
incurred-but-not-reported claims. We do not discount our estimated losses. In addition, we record receivables for amounts expected to be reimbursed for
payments made in excess of self-insurance levels on covered claims related to auto liability and workers’ compensation. At December 31, 2021 and 2020,
we had an accrual of approximately $30.8 million and $32.1 million, respectively for estimated claims. We had no significant receivables recorded for
payments in excess of our self-insured levels. Our claims accruals are classified in accrued other and non-current liabilities in the consolidated balance
sheets, based on when the claim is estimated to be paid.
Concentration of Credit Risk: Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. We place our cash and temporary investments with high quality financial institutions in DDAs, savings accounts and an interest-
bearing checking account. We primarily serve customers located throughout the United States with no significant concentration in any one region. In each
of the years ended December 31, 2021 and 2020, one customer accounted for more than 10% of our annual revenue. No one customer accounted for more
than 10% of our annual revenue for the year ended December 31, 2019. We review a customer’s credit history before extending credit. In addition, we
routinely assess the financial strength of our customers and, as a consequence, believe that our trade accounts receivable risk is limited.
39
Revenue Recognition: In accordance with the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers our
significant accounting policy for revenue is as follows:
Revenue is recognized when we transfer services to our customer in an amount that reflects the consideration we expect to receive. We account for a
contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has
commercial substance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control to
the customer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on
the extent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services,
which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are both
imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Further, in most cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by
the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for
example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick-up and delivery and tracing shipments in transit. We
have discretion in setting prices to our customers and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from
multiple suppliers for the services ordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support
reporting revenue on a gross basis for most of our revenue.
Provision for Income Taxes: Significant judgment is required in determining and assessing the impact of complex tax laws and certain tax-related
contingencies on our provision for income taxes. As part of our calculation of the provision for income taxes, we assess whether the benefits of our tax
positions are at least more likely than not to be sustained upon audit based on the technical merits of the tax position. For tax positions that are not more
likely than not to be sustained upon audit, we accrue the largest amount of the benefit that is not more likely than not to be sustained in our financial
statements. Such accruals require us to make estimates and judgments, whereby actual results could vary materially from these estimates. Further, years
may elapse before a particular matter for which we have established an accrual is audited and resolved or its statute of limitations expires. We recognize
interest expense and penalties related to income tax liabilities in our provision for income taxes.
Deferred income taxes are recognized for the future tax effects of temporary differences between financial statement and income tax reporting using
tax rates in effect for the years in which the differences are expected to reverse. We believe that it is more likely than not that our deferred tax assets will be
realized based on future taxable income projections, with one exception. We have established a valuation allowance of $5.0 million related to federal and
state tax credit carryforwards. In the event the probability of realizing the remaining deferred tax assets does not meet the more likely than not threshold in
the future, a valuation allowance would be established for the deferred tax assets deemed unrecoverable.
Earnings Per Common Share: Basic earnings per common share are based on the average quarterly weighted average number of Class A and Class B
shares of common stock outstanding. Diluted earnings per common share are adjusted for restricted stock using the treasury stock method.
Stock Based Compensation: Share-based compensation includes the restricted stock awards expected to vest based on the grant date fair value.
Compensation expense is amortized straight-line over the vesting period and is included in salaries and benefits.
New Pronouncements: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the
methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis difference in an investment, among
other updates. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. We adopted the standard as of
January 1, 2021, but it did not have an impact on our financial statement.
Use of Estimates: The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for
uncollectible trade accounts, exposure for self-insured claims under our insurance policies and useful lives of assets. Actual results could differ from these
estimates.
Reclassifications: Certain prior year immaterial amounts have been reclassified in Note 5, Revenue from Contracts with Customers, to conform with
the current year presentation.
40
NOTE 2. Capital Structure
We have authorized common stock comprised of Class A Common Stock and Class B Common Stock. The rights of holders of Class A Common
Stock and Class B Common Stock are identical, except each share of Class B Common Stock entitles its holder to approximately 84 votes, while each share
of Class A Common Stock entitles its holder to one vote. We have authorized 2,000,000 shares of preferred stock.
NOTE 3. Earnings Per Share
The following is a reconciliation of our earnings per share (in thousands, except for per share data):
Net income
Weighted average shares outstanding - basic
Dilutive effect of restricted stock
Weighted average shares outstanding - diluted
Earnings per share net income
Basic
Diluted
NOTE 4. Acquisitions
Choptank Transport, LLC Acquisition
2021
Years Ended December 31,
2020
2019
$
171,474
$
73,559
$
107,171
33,434
458
33,892
33,180
363
33,543
$
$
5.13
5.06
$
$
2.22
2.19
$
$
33,284
196
33,480
3.22
3.20
On October 19, 2021, we acquired 100% of the equity interests of Choptank. Total consideration for the transaction was $127.6 million in cash and
the settlement of accounts receivable due from Choptank of $0.3 million. In connection with the acquisition, we granted approximately $22 million of
restricted stock to Choptank's owners and senior management team, which is subject to certain vesting conditions. The grants of restricted stock were made
pursuant to award agreements and issued under our 2017 Long Term Incentive Plan.
The acquisition of Choptank enhanced our refrigerated trucking transportation solutions offering and complemented our growing fleet of refrigerated
intermodal containers. Choptank has developed a best-in-class proprietary technology platform that we will leverage to enhance our truck brokerage service
line.
The initial accounting for the acquisition of Choptank is incomplete as we, with the support of our valuation specialist, are in the process of finalizing
the fair market value calculations of the acquired net assets. In addition, we are preparing a review of the applicable future cash flows used in determining
the purchase accounting. Finally, certain post-closing activities outlined in the acquisition agreement remain incomplete. As a result, the amounts recorded
in the consolidated financial statements related to the Choptank acquisition are preliminary and subject to change.
41
The following table summarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the
acquisition (in thousands):
Cash and cash equivalents
Accounts receivable trade
Prepaid expenses and other current assets
Property and equipment
Right of use assets - operating leases
Goodwill, net
Other intangibles
Total assets acquired
Accounts payable trade
Accrued payroll
Accrued other
Lease liability - operating leases short-term
Lease liability - operating leases long-term
Total liabilities assumed
Total consideration
Cash paid, net
$
$
$
$
$
$
October 19, 2021
5,596
71,576
419
169
872
54,553
60,500
193,685
60,970
3,458
519
311
561
65,819
127,866
122,270
The Choptank acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets
acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of October 19, 2021 with
the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the Choptank acquisition was primarily attributable to potential
expansion and future development of the acquired business.
Tax history and attributes are not inherited in an equity purchase of this kind, however, the goodwill and other intangibles recognized in this purchase
will be fully tax deductible over a period of 15 years.
We incurred approximately $1.1 million of transaction costs associated with this transaction prior to the closing date that are reflected in general and
administrative expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2021.
The components of “Other intangibles” listed in the above table as of the acquisition date are preliminarily estimated as follows (in thousands):
Accumulated
Amortization
Balance at
December 31, 2021
Amount
Customer relationships
Carrier network
Developed technology
Trade name
$
$
$
$
36,300
14,400
6,500
3,300
$
$
$
$
605
900
232
550
$
$
$
$
35,695
13,500
6,268
2,750
Estimated Useful
Life
15 years
4 years
7 years
18 months
The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the year ended
December 31, 2021 was $2.3 million. The intangible assets have a weighted average useful life of approximately 10.7 years. Amortization expense related
to Choptank for the next five years is as follows (in thousands):
Total
$
Year 1
Year 2
Year 3
Year 4
Year 5
9,149
7,499
6,949
6,049
3,349
From the date of the acquisition through December 31, 2021, Choptank’s revenue was $112.2 million and operating income was $0.3 million.
42
NonstopDelivery, LLC Acquisition
On December 9, 2020, we acquired 100% of the equity interests of NSD. Total consideration for the transaction was $105.9 million which consisted
of cash paid of $89.8 million, of which $0.1 million was paid in the second quarter of 2021 as part of the post-closing true-up, and the settlement of Hub’s
accounts receivable due from NSD of $16.1 million.
The acquisition of NSD expanded our logistics service offering to include final mile logistics. NSD provides residential final mile delivery services
through a non-asset business model, working with a network of nearly 200 carriers throughout the country. The financial results, since the acquisition date,
of NSD are included in our logistics line of business.
The following table summarizes the allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition
(in thousands):
December 9, 2020
Cash and cash equivalents
Accounts receivable trade
Prepaid expenses and other current assets
Property and equipment
Right of use assets - operating leases
Goodwill, net
Other intangibles
Other assets
Total assets acquired
Accounts payable trade
Accrued payroll
Accrued other
Lease liability - operating leases short-term
Lease liability - operating leases long-term
Total liabilities assumed
Total consideration
Cash paid, net
$
$
$
$
$
$
4,775
25,927
207
1,018
1,295
38,156
47,700
14
119,092
9,972
1,324
578
373
922
13,169
105,923
84,989
The NSD acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired
and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of December 9, 2020 with the
remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the NSD acquisition was primarily attributable to potential
expansion and future development of the acquired business.
Tax history and attributes are not inherited in an equity purchase of this kind, however, the goodwill and other intangibles recognized in this purchase
will be fully tax deductible over a period of 15 years.
We incurred approximately $1.0 million of transaction costs associated with this transaction prior to the closing date that are reflected in general and
administrative expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2020.
The components of “Other intangibles” listed in the above table as of the acquisition date are estimated as follows (in thousands):
Customer relationships
Trade name
Agent relationships
Amount
$
$
$
46,200
900
600
$
$
$
Accumulated
Amortization
Balance at
December 31, 2021
3,337
650
163
$
$
$
Estimated Useful
Life
15 years
18 months
4 years
42,863
250
437
The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the year ended
December 31, 2021 was $3.7 million. The intangible assets have a weighted average useful life of approximately 13.73 years.
43
From the date of the acquisition through December 31, 2020, NSD’s revenue was $10.2 million and operating income was $0.9 million.
The following unaudited pro forma consolidated results of operations presents the effects of Choptank as though it had been acquired as of January 1,
2020 and NSD as though it had been acquired as of January 1, 2019 (in thousands, except for per share amounts):
Years Ended
December 31, 2020
December 31, 2021
Revenue
Net income
Earnings per share
Basic
Diluted
$
$
$
$
4,624,385
173,254
5.18
5.11
$
$
$
$
3,887,189
79,578
2.40
2.37
$
$
$
$
December 31, 2019
3,733,507
107,998
3.24
3.23
The unaudited pro forma consolidated results for the annual periods were prepared using the acquisition method of accounting and are based on the
historical financial information of Hub, NSD and Choptank. The historical financial information has been adjusted to give effect to the pro forma
adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined
results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been
had we completed the Choptank acquisition as of January 1, 2020 and the NSD acquisition on January 1, 2019.
NOTE 5. Revenue from Contracts with Customers
See Note 1 – Description of Business and Summary of Significant Accounting Policies for significant accounting policy for revenue.
Hub offers comprehensive multimodal solutions including intermodal, logistics, truck brokerage and dedicated services throughout the United States,
Canada and Mexico.
Intermodal. We offer high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both
transcontinental and local lanes by combining rail transportation with local trucking. Our service offering is well positioned to assist our customers in
reducing their transportation spend and achieving their carbon emissions objectives. As an intermodal provider, we arrange for the movement of our
customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul
portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as
“drayage”) are provided by our Hub Group Trucking, Inc. (“HGT”) subsidiary and third-party local trucking companies.
Logistics. Our logistics business offers a wide range of transportation management services and technology solutions including shipment optimization,
load consolidation, mode selection, carrier management, load planning and execution, and shipment visibility. We offer multi-modal transportation services
including full truckload, LTL, intermodal, final mile, railcar, small parcel and international transportation. We leverage proprietary technology along with
collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our
transportation management offering also serves as a source of volume for our intermodal and truck brokerage service lines.
Our logistics offering also includes warehousing, cross-docking and consolidation services. Many of the customers for these solutions are consumer
goods companies who sell into the retail channel. We do not own or operate any warehouses or cross-docks. We contract with third-party warehouse
providers in seven markets across North America to which our customers ship their goods to be stored and consolidated, along with goods from other
customers, into full truckload shipments destined to major retailers. These services offer our customers shipment visibility, transportation cost savings, high
service and compliance with retailers’ increasingly stringent supply chain requirements.
In December 2020, we acquired NSD which added residential final mile transportation services to our logistics offering. Our final mile services
include warehousing, product assembly, inbound transportation to warehouses, delivery of goods to residential locations, and reverse logistics services.
Customers for our final mile services include retailers and consumer goods companies. We contract with nearly 200 agents across the United States who
provide warehousing and transportation to support our final mile offering.
Truck Brokerage. We operate one of the largest truck brokerage operations in the United States, providing customers with a trucking option for their
transportation needs. Our brokerage does not operate any trucks; instead we match customers’ needs with trucking carriers’ capacity to provide the most
effective combination of service and price. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.
Approximately half of our truck brokerage volume is generated from transactions in which we offer lane-based pricing at a fixed rate for periods of up to
one year. The remaining portion of our volume is generated based on shorter term transactional lane-based rates which expire in a short time.
44
We offer a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed. We substantially
increased the size of our brokerage service line and increased our refrigerated transportation capabilities through the acquisition of Choptank in October
2021.
Dedicated. Our dedicated trucking operation contracts with customers who require high service transportation using equipment dedicated to their
needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the
customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for
early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment. As of December 31, 2021, dedicated
employed approximately 1,100 drivers.
The following table summarizes our disaggregated revenue by business line (in thousands) for the years ended December 31:
Intermodal
Logistics
Truck brokerage
Dedicated
Total revenue
$
$
2021
2020
2019
2,391,494
887,388
688,867
264,634
4,232,383
$
$
2,029,186
767,279
431,127
268,052
3,495,644
$
$
2,083,464
852,113
433,793
298,747
3,668,117
NOTE 6. Goodwill and Other Intangible Assets
In accordance with the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification, we completed the required annual
impairment test. We performed a qualitative and quantitative assessment on goodwill and determined it was not, more-likely-than-not, that the fair value of
our reporting unit was less than its carrying value. There were no accumulated impairment losses of goodwill at the beginning of the period.
The following table presents the carrying amount of goodwill (in thousands):
Balance at December 31, 2019
Acquisition
Other
Balance at December 31, 2020
Acquisitions
Other
Balance at December 31, 2021
$
$
$
$
Goodwill
484,459
24,315
(219 )
508,555
68,395
(37 )
576,913
The changes noted as “other” in the table above for both 2021 and 2020 refer to the amortization of the income tax benefit of tax goodwill in excess of
financial statement goodwill.
The components of the “Other intangible assets” are as follows (in thousands):
As of December 31, 2021:
Customer relationships
Carrier network and agent relationships
Developed technology
Trade name
Total
Gross
Amount
Accumulated
Amortization
Net
Carrying
Value
Life
226,623 $
(53,156 ) $
173,467
5-15 years
15,000 $
6,500 $
5,500 $
(1,063 ) $
(232 ) $
(2,500 ) $
13,937
4 years
6,268
7 years
3,000
18 months
253,623 $
(56,951 ) $
196,672
$
$
$
$
$
45
As of December 31, 2020:
Customer relationships
Carrier network and agent relationships
Trade name
Total
Gross
Amount
Accumulated
Amortization
Net
Carrying
Value
Life
$
$
$
$
196,806 $
(36,765 ) $
160,041
5-15 years
2,432 $
2,921 $
(51 ) $
(1,390 ) $
2,381
4 years
1,531
18 months
202,159 $
(38,206 ) $
163,953
The above intangible assets are amortized using the straight-line method. Amortization expense was $18.7 million and $13.8 million for each of the
years ended December 31, 2021 and 2020, respectively. The remaining weighted average life of all definite lived intangible assets was 10.30 years and
10.98 years for the years ended December 31, 2021 and 2020, respectively. Amortization expense for the next five years is as follows (in thousands):
Year 1
Year 2
Year 3
Year 4
Year 5
Total
$
NOTE 7. Income Taxes
The following is a reconciliation of our effective tax rate to the federal statutory tax rate:
U.S. federal statutory rate
State taxes, net of federal benefit
Federal and state incentives
State law changes
Permanent differences
Net effective rate
2021
Years Ended December 31,
2020
2019
21.0 %
3.5
(0.5 )
1.1
0.6
25.7 %
21.0 %
3.6
(1.1 )
(0.2 )
0.2
23.5 %
The following is a summary of our provision for income taxes (in thousands):
25,329
23,284
21,126
20,089
17,389
21.0 %
3.5
(0.9 )
0.7
1.2
25.5 %
Current
Federal
State and local
Foreign
Deferred
Federal
State and local
Foreign
Total provision
2021
$
Years Ended December 31,
2020
$
51,918
13,876
38
65,832
(5,125 )
(1,254 )
(17 )
(6,396 )
11,913
3,597
11
15,521
6,548
465
7
7,020
2019
$
$
59,436
$
22,541
$
46
31,209
3,979
84
35,272
(344 )
1,788
(17 )
1,427
36,699
The following is a summary of our deferred tax assets and liabilities (in thousands):
Accrued compensation
Other reserves
Tax credit carryforwards
Operating loss carryforwards
Lease accounting liability
Total gross deferred income taxes
Valuation allowances
Total deferred tax assets
Prepaids
Property and equipment
Intangibles
Lease right-of-use asset
Total deferred tax liabilities
Total deferred taxes
December 31,
2021
2020
19,226
17,896
8,286
881
11,956
58,245
(5,023 )
53,222
(6,607 )
(135,768 )
(55,466 )
(11,325 )
(209,166 )
$
(155,944 )
$
12,467
14,154
8,715
2,845
11,669
49,850
(6,518 )
43,332
(6,404 )
(132,669 )
(55,166 )
(11,418 )
(205,657 )
(162,325 )
We are subject to income taxation in the United States, numerous state jurisdictions, Mexico and Canada. Because income tax return formats vary
among the states, we file both unitary and separate company state income tax returns. We do not permanently reinvest our foreign earnings, all amounts are
accrued and accounted for, though not material.
We acquired a federal net operating loss carryforward of $4.1 million through the acquisition by way of merger with CaseStack, LLC in December
2018. The Internal Revenue Service ("IRS") loss limitation rules allowed us to utilize $1.3 million in each of the 2021, 2020 and 2019 tax years. The
remaining net operating loss of $0.2 million is expected to be fully utilized in 2022. Our state tax net operating losses total $0.6 million. Some of those
state losses have no expiration date while others will expire between December 31, 2022, and December 31, 2040. Management believes it is more likely
than not that the loss carryforward deferred tax assets will be realized.
Our federal incentive tax credit carryforward of $0.1 million expires between December 31, 2025, and December 31, 2028. Our state incentive tax
credit carryforwards of $8.2 million expire between December 31, 2022, and December 31, 2026. Management believes it is more likely than not that
approximately $3.4 million of the incentive carryforward deferred tax assets will be realized and a valuation allowance of $5.0 million has been established
for the remainder which are not expected to be realized.
As of December 31, 2021 and December 31, 2020, the amount of unrecognized tax benefits was $6.6 million and $4.3 million, respectively. If
recognized, these benefits would decrease our income tax provision by $5.4 million and $3.7 million, respectively. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows (in thousands):
Gross unrecognized tax benefits - beginning of the year
Gross increases (decreases) related to prior year tax positions
Gross increases related to current year tax positions
Lapse of applicable statute of limitations
Gross unrecognized tax benefits - end of year
$
$
2021
2020
4,292
997
1,794
(436 )
6,647
$
$
4,069
(52 )
1,484
(1,209 )
4,292
We recognize interest and penalties related to income tax liabilities in our provision for income taxes. In 2021, we included $0.1 million in our
provision for income taxes.
47
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19
pandemic. Among other things, the CARES Act includes provisions related to refundable payroll tax credits, deferment of the employer portion of social
security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation
methods for qualified improvement property. Though some provisions of the CARES Act do impact the Company, there was no material effect on the
Company’s consolidated financial condition or results of operations for the year ended December 31, 2020. On December 27, 2020, the Consolidated
Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic, in combination with omnibus spending for the 2021 federal
fiscal year. The CAA extended many of the provisions enacted by the CARES Act, the extension of which likewise did not have a material impact on the
Company’s consolidated financial statements for the year ended December 31, 2021.
NOTE 8. Fair Value Measurement
The carrying value of cash and cash equivalents, accounts receivable and accounts payable materially approximated fair value as of December 31,
2021 and 2020. As of December 31, 2021, the $274.8 million carrying value of the Company's fixed-rate borrowings approximated the fair value. As of
December 31, 2020, the fair value of the Company’s fixed-rate borrowings was $6.1 million more than the historical carrying value of $270.4 million. The
fair value of the fixed-rate borrowings was estimated using an income approach based on current interest rates available to the Company for borrowings on
similar terms and maturities.
We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of December 31, 2021 and 2020,
our cash and temporary investments were with high quality financial institutions in Demand Deposit Accounts, savings accounts and an interest-bearing
checking account.
Restricted investments included $24.3 million and $23.4 million as of December 31, 2021 and 2020, respectively, of mutual funds which are reported
at fair value. These investments relate to the nonqualified deferred compensation plan that is described in Note 14 and insurance deposits.
Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by
market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or
inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cash
equivalents, accounts receivable, accounts payable and mutual funds and related liabilities are defined as “Level 1,” while long-term debt is defined as
“Level 2” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification.
NOTE 9. Property and Equipment
Property and equipment consist of the following (in thousands):
Land
Building and improvements
Leasehold improvements
Computer equipment and software
Furniture and equipment
Transportation equipment
Construction in process
Less: Accumulated depreciation
Property and Equipment, net
December 31,
2021
2020
24,724
36,617
7,955
156,169
14,775
863,956
45,248
1,149,444
(467,993 )
681,451
$
$
24,708
36,649
7,686
145,139
14,732
862,247
33,467
1,124,628
(453,527 )
671,101
$
$
Depreciation expense related to property and equipment was $95.5 million, $95.3 million and $89.5 million for the years ended December 31, 2021,
2020 and 2019, respectively.
48
NOTE 10. Long-Term Debt and Financing Arrangements
On July 1, 2017, we entered into a five-year, $350 million unsecured credit agreement (the "Credit Agreement"). Borrowings under the Credit
Agreement generally bear interest at a variable rate equal to (i) LIBOR plus a specified margin based upon Hub’s total net leverage ratio (as defined in the
Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal
funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin based upon the Total Net Leverage Ratio. The specified
margin for Eurodollar loans varies from 100.0 to 200.0 basis points per annum. The specified margin for base rate loans varies from 0.0 to 100.0 basis
points per annum. Hub must also pay (1) a commitment fee ranging from 10.0 to 25.0 basis points per annum (based upon the Total Net Leverage Ratio) on
the aggregate unused commitments and (2) a letter of credit fee ranging from 100.0 to 200.0 basis points per annum (based upon the Total Net Leverage
Ratio) on the undrawn amount of letters of credit. Refer to Note 17 "Subsequent Event" for information regarding the new credit agreement.
We have standby letters of credit that expire in 2022. As of December 31, 2021, our letters of credit were $41.3 million.
As of December 31, 2021, we had no borrowings under the Credit Agreement and our unused and available borrowings were $308.7 million. We were
in compliance with our debt covenants as of December 31, 2021.
We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers, containers and refrigeration units. The Notes are secured
by the underlying equipment financed in the agreements.
Our outstanding Notes are as follows (in thousands):
December 31,
2021
December 31,
2020
Interim funding for equipment received and expected to be converted to an equipment note in subsequent
year; interest paid at a variable rate
$
17,186
$
8,902
Secured Equipment Notes due on various dates in 2026 commencing on various dates in 2021; interest is
paid monthly at a fixed annual rate between 1.48% and 2.41%
Secured Equipment Notes due on various dates in 2025 commencing on various dates in 2020 and 2021;
interest is paid monthly at a fixed annual rate between 1.51% and 1.80%
Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2017, 2019 and
2020; interest is paid monthly at a fixed annual rate between 2.50% and 3.59%
Secured Equipment Notes due on various dates in 2023 commencing on various dates from 2016 to 2019;
interest is paid monthly at a fixed annual rate between 2.20% and 4.20%
Secured Equipment Notes due on various dates in 2022 commencing on various dates from 2015 to 2017;
interest is paid monthly at a fixed annual rate of between 2.20% and 2.96%
Secured Equipment Notes due on various dates in 2021 commencing on various dates from 2014 and 2016;
interest is paid monthly at a fixed annual rate between 2.02% and 2.96%
Less current portion
Total long-term debt
Aggregate principal payments, in thousands, due subsequent to December 31, 2021, are as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
$
$
49
94,766
63,308
34,432
-
74,494
49,920
61,824
112,668
3,236
8,943
15,432
270,359
(93,562 )
176,797
97,273
72,971
48,031
37,257
19,220
274,752
-
274,752
(97,273 )
177,479
$
$
NOTE 11. Leases
The FASB issued ASC 842, Leases, (“ASC 842”) which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for all
leases. We elected this option when we adopted the new standard using a modified retrospective transition method and recognized a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. In addition, we elected to apply
a package of practical expedients and as such did not reassess at the date of initial adoption (1) whether any expired or existing contracts are or contain
leases, (2) the lease classification for any expired or existing leases, or (3) initial direct costs for existing leases. Lessees can also make an accounting
policy election to not recognize an asset and liability for leases with a term of twelve months or less which we elected.
As of December 31, 2021, we recorded $45.3 million of ROU assets and $47.5 million of lease liabilities on our consolidated balance sheet. As of
December 31, 2020, we recorded $47.1 million of ROU assets and $48.2 million of Lease liabilities on our consolidated balance sheet. The lease liabilities
recognized are measured based upon the present value of minimum future payments. The ROU assets are equal to lease liabilities upon initial recording,
adjusted for prepaid and accrued rent balances which are recorded in the Consolidated Balance Sheets.
Hub currently does not have any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest
rate). Some leases have options to extend or terminate the agreement, which management assesses in determining the estimated lease term. If any of the
options to extend a lease are exercised, this change will be reflected as a remeasurement of the ROU asset and lease liability accordingly. As of December
31, 2021, the ROU asset and lease liabilities do not reflect any options to extend or terminate a lease as management is not reasonably certain it will
exercise any of these options. Also, current leases do not contain any restrictions or covenants imposed by the leases or residual value guarantees.
As of December 31, 2021, Hub signed new property lease contracts which had not commenced. Based on the present value of the lease payments, the
estimated ROU assets and lease liabilities related to these contracts will total approximately $1.6 million.
Discount rates are not specified on the individual lease contracts at the commencement date. To determine the present value of the lease payments,
Hub used its incremental borrowing rate which was determined based on Hub’s credit standing and factoring in the current 12-month LIBOR rate published
at the time of the lease commencement. This incremental borrowing rate represents the rate of interest that Hub would have to pay to borrow on a
collateralized basis over a similar term and amounts equal to the lease payments in a similar economic environment.
The following table summarizes the lease costs (in thousands), which are included in transportation costs and general and administrative costs in the
accompanying consolidated statement of income:
2021
Years Ended December 31,
2020
2019
Amortization of finance right-of-use assets
Interest on finance lease liabilities
Finance lease cost
Operating lease cost
Short-term lease cost
Sublease income
Total lease cost
$
$
$
2,304
29
2,333
12,343
171
(327 )
14,520
$
50
$
2,309
135
2,444
10,946
238
(469 )
$
13,159
2,326
252
2,578
10,861
289
(507 )
13,221
The following table represents the maturity of operating and finance lease liabilities (in thousands):
Operating Leases
December 31, 2021
Finance Leases
Total
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
Total
Imputed interest
Present value of lease payments
Less: current lease liabilities
Long-term lease liabilities
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
Total
Imputed interest
Present value of lease payments
Less: current lease liabilities
Long-term lease liabilities
$
$
$
$
12,253 $
9,904
8,133
6,842
5,320
6,436
48,888
2,608
46,280
11,364
34,916 $
1,257 $
-
-
-
-
-
1,257
6
1,251
1,251
- $
Operating Leases
December 31, 2020
Finance Leases
Total
11,082 $
9,714
7,607
6,369
6,312
8,803
49,887
3,466
46,421
10,093
36,328 $
1,817 $
8
-
-
-
-
1,825
24
1,801
1,793
8 $
The following table presents supplemental cash flow and noncash information related to leases:
Operating cash flows from operating leases
Financing cash flows from finance leases
Operating cash flows from finance leases
Cash paid for lease liabilities
Right-of-use assets obtained in exchange for new
financing lease liabilities (net of disposals)
Rights-of-use assets obtained in exchange for new
operating lease liabilities (net of disposals)
$
$
$
$
2021
Years Ended December 31,
2020
2019
11,523 $
2,682
29
14,234 $
(72 ) $
11,684 $
9,419 $
3,066
135
12,620 $
(71 ) $
17,875 $
13,510
9,904
8,133
6,842
5,320
6,436
50,145
2,614
47,531
12,615
34,916
12,899
9,722
7,607
6,369
6,312
8,803
51,712
3,490
48,222
11,886
36,336
9,702
2,954
252
12,908
6
13,242
The weighted average remaining lease term and discount rates as of December 31, are as follows (in thousands):
Weighted average remaining lease term — finance leases
Weighted average remaining lease term — operating leases
Weighted average discount rate — finance leases
Weighted average discount rate — operating leases
December 31, 2021
December 31, 2020
0.6 years
5.11 years
1.56 %
2.14 %
0.6 years
5.61 years
3.88 %
2.64 %
51
NOTE 12. Internal-Use Software
We capitalize internal and external costs, which include costs related to the development of our cloud computing or hosting arrangements, incurred to
develop internal use software per ASC Subtopic 350-40. Refer to Note 1 "Description of Business and Summary of Significant Accounting Policies" for
information regarding accounting policy.
We had total capitalized internal use software costs, which include costs related to the development of our cloud computing or hosting arrangements,
net of accumulated amortization, of $58.7 million and $64.1 million as of December 31, 2021 and 2020, respectively. The 2021 balance consists of
capitalized implementation costs of $12.4 million, net of accumulated amortization, related to our cloud hosting arrangements, which are classified in other
assets in our consolidated balance sheet and capitalized internal-use software costs of $46.3 million, net of accumulated amortization, which are classified
in property and equipment in our consolidated balance sheet. The 2020 balance consists of capitalized implementation costs of $13.9 million, net of
accumulated amortization, related our cloud hosting arrangements, which are classified in other assets in our consolidated balance sheet and capitalized
internal-use software costs of $50.2 million, net of accumulated amortization, which are classified in property and equipment in our consolidated balance
sheet.
We capitalized total implementation and internal-use software costs of $13.7 million and $12.7 million in 2021 and 2020, respectively.
Implementation and internal-use software costs are amortized, once ready for intended use, over its expected useful life or the term of the associated
hosting arrangements of generally up to 10 years.
NOTE 13. Stock-Based Compensation Plans
The 2017 Long-Term Incentive Plan (the “2017 Incentive Plan”) was approved by the Board of Directors and subsequently approved by the
Company’s stockholders at the 2017 annual meeting. The 2017 Incentive Plan authorizes a broad range of awards including stock options, stock
appreciation rights, restricted stock and restricted stock units, performance shares or units, other stock-based awards, and cash incentive awards to all
employees (including the Company’s executive officers), directors, consultants, independent contractors or agents of us or a related company. The 2017
Incentive Plan is effective as of March 15, 2017.
As of December 31, 2021, 401,451 shares were available for future grant under the 2017 Incentive Plan.
We have awarded time-based restricted stock to our employees and the Company’s non-employee directors (“Outside Directors”). This restricted
stock generally vests ratably (once per year) over a three to five-year period for recipients other than Outside Directors. Outside Directors’ restricted stock
vests over a one-year period. In 2021, 2020 and 2019 we also granted performance-based restricted stock to our executive officers. The performance-based
restricted stock vests upon the third anniversary of its issuance if certain financial targets are achieved.
Share-based compensation expense for 2021, 2020 and 2019 was $20.1 million, $17.1 million and $16.3 million or $14.9 million, $13.1 million and
$12.1 million, net of taxes, respectively. Included in the 2021, 2020 and 2019 share-based compensation expense was $5.8 million, $4.5 million and $3.4
million of performance-based share expenses or $4.3 million, $3.5 million and $2.6 million, net of taxes, respectively.
52
The fair value of non-vested restricted stock is equal to the market price of our stock at the date of grant.
The following table summarizes the non-vested restricted stock activity for the year ended December 31, 2021:
Time-Based
Restricted Stock
Shares
Time-Based
Restricted Stock
Weighted
Average
Grant Date
Fair Value
Performance-Based
Restricted Stock
Shares
Performance-Based
Restricted Stock
Weighted
Average
Grant Date
Fair Value
Non-vested January 1, 2021
Granted
Vested
Forfeited
Non-vested at December 31, 2021
792,483
534,580
(303,995 )
(117,701 )
905,367
$
$
$
$
$
46.01
66.02
44.08
48.48
59.00
129,478
117,608
(76,000 )
(42,132 )
128,954
$
$
$
$
$
The following table summarizes the restricted stock granted during the respective years:
Time-based restricted stock grants
2021
2020
2019
Employees
Outside directors
Total
510,017
24,563
534,580
312,855
26,341
339,196
Weighted average grant date fair value
$
66.02
$
52.07
$
Vesting period
1-5 years
1-5 years
45.64
50.60
37.20
47.77
54.45
355,579
32,262
387,841
38.02
1-5 years
The performance-based restricted stock granted in 2019 earned a 200% award therefore an additional 38,000 shares were issued to settle the award on
the vesting date of December 21, 2021. The 2021 grant of performance-based restricted stock resulted in the issuance of 79,608 shares. The performance-
based restricted stock grants were 75,288 in 2020 and 76,500 in 2019. The weighted average grant date fair value of these shares was $57.00 in 2021,
$51.07 in 2020, and $37.20 in 2019.
The total fair value of restricted shares vested during the years ended December 31, 2021, 2020 and 2019 was $25.4 million, $17.8 million and $14.7
million, respectively.
As of December 31, 2021, 2020, and 2019, there was $45.5 million, $27.5 million and $27.4 million of unrecognized compensation cost related to
non-vested time-based compensation, respectively, that is expected to be recognized over a weighted average period for 2021, 2020, and 2019 of 3.11
years, 2.47 years and 2.91 years, respectively. Additionally, as of December 31, 2021, 2020, and 2019 there was $6.5 million, $4.0 million and $3.7 million
of unrecognized compensation cost, respectively, related to the non-vested performance-based restricted stock compensation that is expected to be
recognized over a weighted average period of 1.5 years for 2021, 2020 and 2019.
During January 2022, we granted 198,051 shares of restricted stock, which includes 51,794 performance-based shares and 129,632 time-based shares,
to certain employees and 16,625 shares of restricted stock to our Outside Directors with a weighted average grant date fair value of $84.24. These time-
based grants generally vest ratably (once per year) over a three to five-year period for employees and a one-year period for Outside Directors. Performance-
based grants vest after three years.
53
NOTE 14. Employee Benefit Plans
We have a profit-sharing plan under section 401(k) of the Internal Revenue Code. At our discretion, we partially match qualified contributions made
by employees to the plan. We incurred expense of $3.1 million related to this plan in 2021 and $3.3 million in each of 2020 and 2019.
In January 2005, we established the Hub Group, Inc. Nonqualified Deferred Compensation Plan (the “Plan”) to provide added incentive for the
retention of certain key employees. Under the Plan, which was amended in 2008, participants can elect to defer certain compensation. Accounts grow on a
tax-deferred basis to the participant. Restricted investments included in the Consolidated Balance Sheets represent the fair value of the mutual funds and
other security investments related to the Plan as of December 31, 2021 and 2020. Both realized and unrealized gains and losses are included in income and
expense and offset the change in the deferred compensation liability. We provide a 50% match on the first 6% of employee compensation deferred under
the Plan which vests over three years with a maximum match equivalent to 3% of base salary.
We incurred expense of $0.3 million per year related to the employer match for these plans in 2021, 2020 and 2019. The liabilities related to these
plans as of December 31, 2021 and 2020 were $24.1 million and $23.4 million, respectively.
NOTE 15. Legal Matters
Robles and Adame
On January 25, 2013, a complaint was filed in the United States District Court for the Eastern District of California by Salvador Robles against our
subsidiary HGT. The action was brought on behalf of a putative class comprised of present and former California-based truck drivers who, from January
2009 to September 2014, were classified as independent contractors. The complaint included allegations that HGT misclassified these drivers as
independent contractors, as well as various violations of the California Labor Code and that HGT engaged in unfair competition practices. In 2014, most of
the subject drivers accepted settlements that were expensed in 2014 and paid. In 2015, the lawsuit was transferred to the United States District Court for the
Western District of Tennessee. The complaint sought, among other things, declaratory and injunctive relief, monetary damages and attorney’s fees. In May
2013, the complaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims were only on
behalf of Mr. Robles and not a putative class.
On August 5, 2015, a suit was filed in state court in San Bernardino County, California on behalf of 63 named plaintiffs against HGT and five
Company employees. Plaintiffs in the Adame litigation are represented by the same counsel as represents the plaintiffs in Robles. The Adame lawsuit
alleges claims similar to those asserted in the Robles litigation and seeks monetary penalties under the California Private Attorneys General Act.
In September 2019, the Company and the plaintiffs in the Robles and Adame matters agreed in principle to settle all claims in both lawsuits for $4.8
million, which the Company recorded in the third quarter of 2019 and is included in "Accrued other" current liabilities on the accompanying Consolidated
Balance Sheet. The parties are finalizing the settlement agreements, which are subject to final court approval.
The Company is involved in certain other claims and pending litigation arising from the normal conduct of business, including putative class-action
lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest
periods, failure to reimburse incurred business expenses and other items. Based on management's present knowledge, management does not believe that
loss contingencies arising from these pending matters are likely to have a material adverse effect on the Company's overall financial position, operating
results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position,
operating results, or cash flows for any particular period.
NOTE 16. Stock Repurchase Plans
On May 23, 2019, our Board of Directors authorized the purchase of up to $100 million of our Class A Common Stock. Under the program, the shares
may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. Other than from
employee withholdings as described below, we did not purchase any stock under this authorization during the year ended December 31, 2021 and 2020. We
purchased 626,320 shares for $25.0 million under this authorization from shareholders on the open market during the year ended December 31, 2019. The
approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be extended, modified,
suspended, or discontinued at any time.
54
We purchased 134,329 shares for $9.1 million during 2021, 148,242 shares for $8.0 million during 2020 and 98,260 shares for $4.0 million in 2019
related to employee withholding upon vesting of restricted stock. The table below summarizes the number of shares delivered to us by employees to satisfy
the mandatory tax withholding requirement upon vesting of restricted stock during 2021:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
Maximum Value of
Shares that May Yet
Be Purchased Under
the Plan
(in 000’s)
1/1/2021 - 1/31/2021
2/1/2021 - 2/28/2021
3/1/2021 - 3/31/2021
4/1/2021 - 4/30/2021
5/1/2021 - 5/31/2021
6/1/2021 - 6/30/2021
7/1/2021 - 7/31/2021
8/1/2021 - 8/31/2021
9/1/2021 - 9/30/2021
10/1/2021 - 10/31/2021
11/1/2021 - 11/30/2021
12/1/2021 - 12/31/2021
Total
NOTE 17. Subsequent Event
63,349
2,630
-
968
1,144
1,117
703
53
212
409
1,700
62,044
134,329
$
$
$
$
$
$
$
$
$
$
$
$
$
57.00
56.29
-
66.89
66.50
65.24
65.48
67.38
69.85
77.76
82.28
79.18
67.91
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
75,002
In February 2022, we entered into a five year, $350 million unsecured credit agreement (the "Credit Agreement"). Borrowings under the Credit
Agreement generally bear interest at a variable rate equal to (i) the secured overnight financing rate (published by the Federal Reserve Bank of New York,
“SOFR”), plus a specified margin based on the term of such borrowing, plus a specified margin based upon Hub’s total net leverage ratio (as defined in the
Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal
funds rate plus 0.50% or (c) the sum of 1% and one-month SOFR) plus a specified margin based upon the Total Net Leverage Ratio. The specified margin
for SOFR loans varies from 100.0 to 175.0 basis points per annum. The specified margin for base rate loans varies from 0.0 to 75.0 basis points per annum.
Hub must also pay (1) a commitment fee ranging from 10.0 to 25.0 basis points per annum (based upon the Total Net Leverage Ratio) on the aggregate
unused commitments and (2) a letter of credit fee ranging from 100.0 to 175.0 basis points per annum (based upon the Total Net Leverage Ratio) on the
undrawn amount of letters of credit.
55
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
MANAGEMENT’S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2021, an evaluation was carried out under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule
13a-15(e)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2021.
No significant changes were made in our internal control over financial reporting during the fourth quarter of 2021 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate controls over financial reporting as defined in Rule 13a-15(f) of the Exchange
Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021. Based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria), management concluded that our internal control over financial reporting was effective as of December 31, 2021.
On October 19, 2021, we completed the acquisition of Choptank. We are currently integrating processes, employees, technologies and operations. As
permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), we excluded Choptank from our assessment of our internal
control over financial reporting as of December 31, 2021. Management will continue to evaluate our internal controls over financial reporting as we
complete our integration. As of December 31, 2021, Choptank represented 7.8% of total assets and 9.6% of net assets. For the year ended December 31,
2021, Choptank represented 2.7% of revenues and 0.2% of net income.
Management believes, however, that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of
the control system are met, and no evaluation controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected.
Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial statements, included in this
report, has issued an attestation report on the Company’s internal control over financial reporting.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Hub Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Hub Group, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hub Group, Inc.
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
As indicated in the accompanying Management Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the internal controls of Choptank Transport, LLC (Choptank), which was acquired on October 19,
2021 and is included in the 2021 consolidated financial statements of the Company and constituted 7.8% and 9.6% of total and net assets, respectively, as of December 31,
2021 and 2.7% and 0.2% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did
not include an evaluation of the internal control over financial reporting of Choptank.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of
Hub Group, Inc. as of December 31, 2021and 2020, the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each
of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(b), and our report dated
February 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 25, 2022
57
Item 9B.
OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Information Regarding Directors and Executive Officers. The information required by this Item 10 regarding our directors and director nominees is
contained under the captions “Who are the nominees this year” and “Are there any family relationships between any of the directors, executive officers or
nominees,” in each case under the heading “Proposal 1: Election of Directors” in the 2022 Proxy Statement, which information under such captions is
incorporated herein by reference. Information required by this Item 10 regarding our executive officers appears in Part I of this Annual Report under the
caption “Information About Our Executive Officers,” which information under such caption is incorporated herein by reference.
(b) Code of Business Conduct and Ethics. The Company has adopted a Code of Business Conduct and Ethics (“Code”) that applies to all of our
employees, officers and Board members. The Code is posted on the “Investors” section of our Internet website at www.hubgroup.com. If we choose to no
longer post such Code, we will provide a free copy to any person upon written request to Investor Relations, Hub Group, Inc. 2000 Clearwater Drive, Oak
Brook, Illinois 60523. We intend to provide any required disclosure of an amendment to or waiver from such Code that applies to our principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our Internet website located at
www.hubgroup.com promptly following any such amendment or waiver. We may elect to disclose any such amendment or waiver in a Current Report on
Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our Internet website is
not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.
(c) Procedures for Shareholders to Recommend Director Nominees. There have been no material changes to the procedures by which security holders may
recommend nominees to the registrant’s Board of Directors.
(d) Audit Committee Information. Information required by this Item 10 regarding our Audit Committee and our audit committee financial experts may be
found under the captions “What functions are performed by the Audit, Compensation, and Nominating Committees” and “Does Hub Group have an audit
committee financial expert serving on its Audit Committee,” in each case under the heading “Corporate Governance” in the 2022 Proxy Statement, which
information pertaining to the audit committee and its membership and audit committee financial experts under such captions is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 regarding director and executive officer compensation, the Compensation Committee Report, the risks arising
from our compensation policies and practices for employees, pay ratio disclosure, and compensation committee interlocks and insider participation is
contained under the captions “Director Compensation” and “Executive Compensation” appearing in our 2022 Proxy Statement, which information under
such captions is incorporated herein by reference.
58
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
(a) Equity Compensation Plan Information. The following table sets forth information about securities authorized for issuance under our compensation
plans (including individual compensation arrangements) as of December 31, 2021:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities
to be issued
upon exercise of
outstanding
options,
warrants and
rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
—
$
—
—
$
Number of securities
remaining available
for
future issuance
under
equity compensation
plans (excluding
securities reflected
in
column (a))
—
401,451
—
—
—
401,451
(b) Other Information. The information required by this Item 12 regarding security ownership of certain beneficial owners and our management is
contained under the caption “Security Ownership” in the 2022 Proxy Statement, which information under such caption is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 regarding certain relationships and related transactions is contained under the caption “Transactions with
Management and Others” in the 2022 Proxy Statement, which information under such caption is incorporated herein by reference.
The information required by this Item 13 regarding director independence is contained under the caption “Director Independence” in the 2022 Proxy
Statement, which information under such caption is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 regarding fees we paid to our principal accountant and the pre-approval policies and procedures established by the
Audit Committee of our Board of Directors is contained under the caption “Fees Paid to Auditors” in the 2022 Proxy Statement, which information under
such caption is incorporated herein by reference.
59
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following consolidated financial statements of the Registrant are included under Item 8 of this Form 10-K:
PART IV
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2021 and December 31, 2020
Consolidated Statements of Income and Comprehensive Income - Years ended December 31, 2021, December 31, 2020 and December 31, 2019
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2021, December 31, 2020 and December 31, 2019
Consolidated Statements of Cash Flows - Years ended December 31, 2021, December 31, 2020 and December 31, 2019
Notes to Consolidated Financial Statements
(b) Financial Statement Schedules
The following financial statement schedules of Hub Group, Inc. are filed as part of this report and should be read in conjunction with the consolidated
financial statements of Hub Group, Inc.:
II. Valuation and qualifying accounts and reserves
Page
S-1
All other schedules are omitted because they are not required, are not applicable, or the required information is shown in the consolidated financial
statements or notes thereto.
(c) Exhibits
The exhibits included as part of this Form 10-K are set forth in the Exhibit Index immediately preceding the signature page to this report, which Exhibit
Index is incorporated herein by reference.
Item 16. FORM 10-K SUMMARY
None.
60
SCHEDULE II
HUB GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for uncollectible trade accounts
Year Ended
December 31:
Balance at
Beginning of
Year
Charged to
Costs &
Expenses
Charged to
Other
Accounts (1)
Deductions (2)
Balance at
End of
Year
2021
2020
2019
$
$
$
8,280,000
6,910,000
6,728,000
$
$
$
308,000
135,000
180,000
$
$
$
11,510,000
1,242,000
5,000
$
$
$
(37,000 )
$
20,061,000
(7,000 )
$
8,280,000
(3,000 )
$
6,910,000
Deferred tax valuation allowance
Year Ended
December 31:
2021
2020
2019
Balance at
Beginning of
Year
Charged to
Costs &
Expenses
Balance at
End of
Year
$
$
$
6,518,000
4,713,000
3,128,000
$
$
$
(1,495,000 )
1,805,000
1,585,000
$
$
$
5,023,000
6,518,000
4,713,000
(1) Expected customer account adjustments charged to revenue and write-offs, net of recoveries.
(2) Represents bad debt recoveries.
S-1
INDEX TO EXHIBITS
Exhibit
Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s quarterly
report on Form 10-Q filed July 23, 2007, File No. 000-27754)
By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s report on Form 8-K dated February 18, 2016 and filed
February 23, 2016, File No. 000-27754)
Description of Hub Group, Inc. Class A Common Stock, $.01 par value
Amended and Restated Stockholders’ Agreement (incorporated by reference to Exhibit 10.1 to the Registrants report on Form 10-Q dated and
filed July 30, 2014, File No 000-27754)
Class B Common Stock Issuance Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 10-Q dated and filed
July 30, 2014, File No. 000-27754)
Hub Group’s Nonqualified Deferred Compensation Plan Basic Plan Document as amended and restated as of January 1, 2008 (incorporated by
reference to Exhibit 10.4 to the Registrant’s report on Form 10-K dated February 21, 2008 and filed February 22, 2008, File No. 000-27754)
Hub Group’s Nonqualified Deferred Compensation Plan Adoption Agreement as amended and restated as of January 1, 2008 (incorporated by
reference to Exhibit 10.5 to the Registrant’s report on Form 10-K dated February 21, 2008 and filed February 22, 2008, File No. 000-27754).
Hub Group’s 2002 Long Term Incentive Plan (as amended and restated effective May 7, 2007) (incorporated by reference from Appendix B to
the Registrant’s definitive proxy statement on Schedule 14A dated and filed March 26, 2007)
Credit Agreement, dated July 1, 2017, among the Registrant, Hub City Terminals, Inc., the Guarantors, the Lenders and Bank of Montreal
(incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K dated July 1, 2017 and filed July 7, 2017, File No. 000-27754)
Form of Terms of Restricted Stock Award under Hub Group, Inc. 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Registrant’s report on Form 8-K dated May 22, 2006 and filed May 26, 2006, File No. 000-27754)
Hub Group’s 2017 Long Term Incentive Plan (incorporated by reference from Exhibit A to the Registrant’s definitive proxy statement on
Schedule 14A dated and filed March 22, 2017)
Form of Terms of Restricted Stock Award to Directors under Hub Group, Inc. 2017 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Registrant’s report on Form 8-K dated May 10, 2017 and filed May 16, 2017, File No. 000-27754)
Number
3.1
3.2
4.1
10.1
10.2
10.3*
10.4*
10.7*
10.8
10.11*
10.12
10.13*
10.14*
Form of Terms of Restricted Stock Award to non-directors under Hub Group, Inc. 2017 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Registrant’s report on Form 8-K dated May 10, 2017 and filed May 16, 2017, File No. 000-27754)
10.15*
Form of Terms of Performance Based Restricted Stock Award under Hub Group, Inc. 2017 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Registrant’s report on Form 8-K dated January 2, 2018 and filed January 5, 2018, File No. 000-27754)
21
Subsidiaries of the Registrant
S-1
23.1
Consent of Ernst & Young LLP
24.1
31.1
31.2
32.1
101
Powers of Attorney (included as part of the signature pages hereto)
Certification of David P. Yeager, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) promulgated under the Securities Exchange
Act of 1934
Certification of Geoffrey F. DeMartino, Executive Vice President, Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934
Certification of David P. Yeager and Geoffrey F. DeMartino, Chief Executive Officer and Chief Financial Officer respectively, Pursuant to 18
U.S.C. Section 1350
Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K
104
Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set
* Management contract or compensatory plan or arrangement.
S-1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
SIGNATURES
behalf by the undersigned, thereunto duly authorized.
Date: February 25, 2022
HUB GROUP, INC.
By
/s/ DAVID P. YEAGER
David P. Yeager
Chairman and Chief Executive Officer
We, the undersigned directors and officers of the registrant, hereby severally constitute David P. Yeager and Geoffrey F. DeMartino, and each of them
singly, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names in the capacities indicated below, any and all
amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ David P. Yeager
David P. Yeager
Chairman and Chief Executive Officer
/s/ Geoffrey F. DeMartino
Geoffrey F. DeMartino
Executive Vice President, Chief Financial Officer, and
Treasurer
Title
Date
February 25, 2022
February 25, 2022
/s/ Kevin W. Beth
Kevin W. Beth
/s/ Charles R. Reaves
Charles R. Reaves
/s/ Martin P. Slark
Martin P. Slark
/s/ James C. Kenny
James C. Kenny
/s/ Peter B. McNitt
Peter B. McNitt
/s/ Mary H. Boosalis
Mary H. Boosalis
/s/ Jenell Ross
Jenell Ross
Executive Vice President and Chief Accounting Officer
February 25, 2022
Director
Director
Director
Director
Director
Director
S-1
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
Description of the Company’s Common Stock Registered
Under Section 12 of the Securities Exchange Act of 1934
EXHIBIT 4.1
The following summary of the Class A Common Stock (par value $0.01 per share) of Hub Group, Inc. (“Hub Group” or the
“Company”) is based on and qualified by the Company’s Certificate of Incorporation (the “Certificate”) and Amended and
Restated Bylaws, as amended (the “Amended Bylaws”). For a complete description of the terms and provisions of the Company’s
equity securities, including its Common Stock, refer to the Certificate of Incorporation and Amended Bylaws, each of which is
filed or incorporated by reference as an exhibit to this Annual Report on Form 10-K.
Hub Group’s Certificate of Incorporation authorizes the issuance of 97,337,700 shares of Class A Common Stock
(“Class A Common Stock”), 662,300 shares of Class B Common Stock (“Class B Common Stock”) and 2,000,000 shares of
preferred stock (“Preferred Stock”), all with a par value of $0.01 per share.
Voting Rights . The holders of Class A Common Stock have one vote per share and the holders of the Class B
Common Stock have 20 votes per share. Except as otherwise required by law, the holders of the Class A Common Stock and the
Class B Common Stock vote together as a single class with respect to all matters submitted for a vote of stockholders. Shares of
Class A Common Stock and Class B Common Stock do not have cumulative voting rights.
Dividend Rights. Each share of Class A Common Stock and Class B Common Stock is entitled to dividends if, as and
when dividends are declared by the Company’s Board of Directors (“Board”). Any dividend declared and payable in cash, our
capital stock (other than Class A Common Stock or Class B Common Stock) or other property must be paid equally on a share-
for-share basis on Class A Common Stock and Class B Common Stock. Dividends and distributions payable in shares of Class A
Common Stock may be paid only on shares of Class A Common Stock, and dividends and distributions payable in shares of
Class B Common Stock may be paid only on shares of Class B Common Stock. If a dividend or distribution payable in Class A
Common Stock is made on Class A Common Stock, the number of votes per share to which the holders of Class B Common
Stock are entitled will be adjusted in order to keep the voting power of the Class B Common Stock consistent with the voting
power of the Class B Common Stock prior to the dividend or distribution of shares of Class A Common Stock. If a dividend or
distribution payable in Class B Common Stock is made on Class B Common Stock, a simultaneous and equivalent dividend or
distribution in Class A Common Stock must be made on Class A Common Stock.
Conversion Rights. The Class A Common Stock is not convertible. Each share of Class B Common Stock is convertible
into one share of Class A Common Stock at any time at the option of and without cost to the holder thereof. In addition, the Class
B Common Stock automatically converts on a share-for-share basis into a Class A Common Stock in the event of certain
transfers of the Class B Common Stock.
Liquidation Rights. The holders of the Class A Common Stock and the holders of the Class B Common Stock are entitled to
participate equally on a share-for-share basis in all distributions to the holders of Common Stock in any liquidation, distribution
or winding up of Hub Group, subject to the rights of the holders of any class or series of Preferred Stock. If a dividend or
distribution payable in Class A Common Stock is made on the Class A Common Stock, the liquidation preference on the Class B
Common Stock will be adjusted proportionately.
Preemptive Rights. Neither the holders of Class A Common Stock nor the holders of Class B Common Stock have
preemptive rights to purchase shares of any class of our capital stock.
Redemption and Sinking Fund Privileges. Neither the holders of the Class A Common Stock nor the holders of the Class
B Common Stock have any redemption or sinking fund privileges.
Other Terms. Upon any subdivision, consolidation, reclassification or other change in the Class A Common Stock, the
Class B Common Stock will be adjusted proportionately such that the Class B Common Stock retains the same relative voting
power as prior to the subdivision, consolidation, reclassification or other change. The Class B Common Stock may not be
subdivided, consolidated, reclassified or otherwise changed unless contemporaneously therewith the Class A Common Stock is
subdivided, consolidated, reclassified or otherwise changed in the same proportion and in the same manner.
In any merger, consolidation or business combination, the consideration to be received per share by holders of either Class
A Common Stock or Class B Common Stock must be identical to that received by holders of the other class of Common Stock,
except that in any such transaction in which shares of capital stock are distributed, such shares may differ as to voting rights only
to the extent that voting rights now differ between Class A Common Stock and Class B Common Stock.
Issuance of Preferred Stock. Hub Group’s Preferred Stock is issuable at any time, and from time to time, in such amounts
and series and bearing such voting, dividend, conversion, liquidation and other rights and preferences as the Board may
determine. The Preferred Stock could be issued for any lawful corporate purpose without further action by the shareholders. The
issuance of any Preferred Stock having conversion rights could have the effect of diluting the interests of the other shareholders.
Shares of Preferred Stock also could be issued with such rights, privileges and preferences as would deter a tender or exchange
offer or to discourage the acquisition of control of the Company.
Provisions in Hub Group’s Certificate of Incorporation. Hub Group’s Certificate of Incorporation contain certain other
provisions that could impede or delay a change in control of the Company, including:
• Until such time as sufficient shares of Class B Common Stock are converted to shares of Class A Common Stock or we
issue sufficient shares of Class A Common Stock to dilute the voting power of the holders of the Class B Common
Stock, the holders of Class B Common Stock will have the power to defeat any attempt to acquire control of Hub Group
even though such a change in control may be favored by stockholders holding substantially more than a majority of our
outstanding shares of Class A Common Stock. This may have the effect of precluding holders of Class A Common Stock
from receiving any premium above market price for their shares which may be offered in connection with any such
attempt to acquire control. The holders of Class B Common Stock will also generally have the power to effect certain
fundamental corporate changes, such as a sale of substantially all of our assets, a merger involving us, or an amendment
to our certificate of incorporation that does not directly affect the rights of holders of Class A Common Stock, without
the approval of holders of Class A Common Stock. The holders of the Class B Common Stock have agreed to vote their
shares of Class B Common Stock in accordance with the vote of the holders of a majority of such shares.
• A provision that allows directors, in determining whether to take or refrain from taking corporate action on any matter,
including proposing any matter to the stockholders of the Corporation, to take into account the long-term as well as
short-term interests of the Company and its stockholders (including the possibility that these interests may be best served
by the continued independence of the Company), employees, customers, and other constituencies of the Company,
including the effect upon communities in which the Company does business;
•
•
•
•
a provision that amendments to certain portions of Hub Group’s Certificate of Incorporation must be approved by a two-
thirds of the votes that could be cast by the holders of all shares of the Company’s capital stock entitled to vote; and
a provision that any special meeting of shareholders may be called only by the Hub Group’s chairman, chief executive
officer, president, Board or the holders of a majority of the votes that could be cast by holders of all shares of capital
stock of the Company.
Provisions in Hub Group’s Amended Bylaws. Hub Group’s Amended Bylaws contain certain provisions that could
impede or delay a change in control of the Company, including:
a provision that amendments to certain portions of Hub Group’s Amended Bylaws must be approved by a holders of
shares having 80% of the votes that could be cast by the holders of all shares of the Company’s capital stock entitled to
vote; and
a provision establishing certain advance notice procedures for matters (including the nomination of directors) to be
considered at an annual meeting of Hub Group’s shareholders.
Subsidiaries of Hub Group, Inc.
SUBSIDIARIES
Hub City Terminals, Inc.
Hub Group Atlanta, LLC
Hub Group Associates, Inc.
Hub Chicago Holdings, Inc.
Hub Group Transport, LLC
Hub Freight Services, Inc.
Hub Group Trucking, Inc.
HGNA Group de Mexico, S. de RL de C.V.
Hub Group Canada Inc.
Hub Group Dedicated, LLC
CaseStack, LLC
Hub Group Global, LLC
Hub Group, LLC
NonstopDelivery, LLC
Quality Services, LLC
Hub Group Trucking California, LLC
Choptank Transport, LLC
Choptank Leasing, LLC
PJ Assurance, Inc.
EXHIBIT 21
JURISDICTION OF INCORPORATION/ORGANIZATION
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Mexico
Ontario
Delaware
Delaware
Illinois
Delaware
Delaware
Missouri
Delaware
Delaware
Maryland
Vermont
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statement Form S-8 No. 333-218509 pertaining to the Hub Group, Inc. 2017 Long-Term Incentive Plan and
Form S-8 No. 333-107745 pertaining to the Hub Group Employee Profit Sharing Plan and Trust of our reports dated February 25, 2022, with respect to the consolidated
financial statements and schedule of Hub Group, Inc., and the effectiveness of internal control over financial reporting of Hub Group, Inc., included in this Annual Report
(Form 10-K) of Hub Group, Inc. for the year ended December 31, 2021.
/s/ Ernst & Young LLP
Chicago, Illinois
February 25, 2022
CERTIFICATION
EXHIBIT 31.1
I, David P. Yeager, certify that:
1)
2)
3)
4)
I have reviewed this report on Form 10-K of Hub Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 25, 2022
/s/ David P.Yeager
Name:
Title:
David P. Yeager
Chairman and Chief Executive Officer
CERTIFICATION
EXHIBIT 31.2
I, Geoffrey F. DeMartino, certify that:
1)
2)
3)
4)
I have reviewed this report on Form 10-K of Hub Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 25, 2022
/s/ Geoffrey F. DeMartino
Name:
Title:
Geoffrey F. DeMartino
Executive Vice President,
Chief Financial Officer and Treasurer
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
The following statement is provided by the undersigned to accompany the Annual Report on Form 10-K for the year ended December 31, 2021 of Hub Group, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and shall not be deemed filed pursuant to any provision of the Exchange Act of 1934 or any other
securities law.
Each of the undersigned certifies that the foregoing Report on Form 10-K fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78m) and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Hub Group, Inc.
Date: February 25, 2022
/s/David P. Yeager
David P. Yeager
Chairman and Chief Executive Officer
/s/Geoffrey F. DeMartino
Geffrey F. DeMartino
Executive Vice President, Chief Financial Officer and Treasurer