What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-25 · 178 added, 145 removed, 644 unchanged (33% of the section changed)

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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”).

(the “Company”) as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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.

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, 2022, 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 24, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Lease liability - operating leases

Lease liability - financing leases

Deferred taxes

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$ .01 par value;

97,337,700 shares authorized and 41,224,792 shares issued in 2021 and 2020;

97,337,700 shares authorized;

41,312,185 shares issued in 2022 and 41,224,792 shares issued in 2021;

32,646,621 shares outstanding in 2022 and 33,907,734 shares outstanding in 2021.

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662,300 shares authorized;

662,296 shares issued and outstanding in 2021 and 2020

574,903 shares issued and outstanding in 2022 and 662,296 shares issued and outstanding in 2021.

Additional paid-in capital

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Other income (expense):

Interest expense

Interest income

Total other income (expense)

Interest expense, net

Total other expense, net

Income from continuing operations before income taxes

Income tax expense

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation adjustments

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Balance December 31, 2019

Purchase of treasury shares

Stock tendered for payments of withholding taxes

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Share-based compensation expense

Adoption of ASC 842

Foreign currency translation adjustment

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Stock tendered for payments of withholding taxes

Purchase of treasury stock

Purchase of treasury stock from related party (Note 17)

Issuance of restricted stock awards, net of forfeitures

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Depreciation and amortization

Impairment of right-of-use asset

Deferred taxes

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Acquisitions, net of cash acquired

Proceeds from the disposition of discontinued operations

Net cash used in investing activities

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Repayments of long-term debt

Stock tendered for payments of withholding taxes

Purchase of treasury stock

Purchase of treasury stock from related party (Note 17)

Stock tendered for payments of withholding taxes

Finance lease payments

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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“

On August 22, 2022, we acquired TAGG Logistics, LLC (“TAGG”), o n 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.

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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.

As of December 31, 2022 and 2021 , our cash and temporary investments were with high quality financial institutions in demand deposit accounts (“DDAs”), savings accounts, checking accounts and money market accounts.

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’

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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.

Management continuously reviews and assesses the environment and its potential impact on the credit worthiness and collectability of our accounts receivable with customers most affected by tighter financial conditions.

Our allowance for credit losses is presented in the allowance for uncollectible trade accounts and is immaterial at December 31, 2022 and 2021.

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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:

Internal use software has both 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.

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compensation.

At December 31, 2021 and 2020, we had an accrual of approximately $ 30.8 million and $ 32.1 million, respectively for estimated claims.

At December 31, 2022 and 2021, we had an accrual of approxima tely $ 38.8 million an d $ 30.8 mil lion, respectively for estimated claims.

We had no significant receivables recorded for payments in excess of our self-insu red levels.

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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 place our cash and temporary investments with high quality financial institutions in DDAs, savings accounts, checking accounts and money market accounts.

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, 2022, 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 revie w a customer’s credit history before extending credit.

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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:

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.

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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.

We have established a valuation allowance of $ 1.6 mill ion 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.

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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.

Significant estimates include the allowance for uncollectible trade accounts, exposure for self-insured claims under our insurance policies, valuation of acquired goodwill and intangible assets 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.

Capital Structure

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Earnings per share net income

TAGG Logistics, LLC Acquisition

On August 22, 2022 , we acquired 100 % of the equity interests of TAGG Logistics, LLC (“TAGG”), a provider of e-commerce, B2B and omnichannel fulfillment solutions, including warehousing and transportation services.

Total consideration for the transaction was $ 103.4 million.

$ 103.5 million was paid in cash during the third quarter of 2022 while $ 0.1 million is due back from the seller in the first quarter of 2023 as part of the post-closing true-up.

TAGG is a nationwide provider with over 4 million square feet of warehousing space throughout the United States allowing for responsive e-commerce and B2B fulfillment services.

The acquisition improved our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs.

The acquisition added scale to our logistics service line and has resulted in complementary cross-selling opportunities.

The initial accounting for the acquisition of TAGG 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 including the review of the applicable future cash flows used in determining the purchase accounting.

As a result, the amounts recorded in the consolidated financial statements related to the TAGG acquisition are preliminary and the measurement period remains open.

The following table summarizes the preliminary allocation of the total purchase consideration to the net assets acquired and liabilities assumed as of the date of the acquisition (in thousands):

August 22, 2022

Cash and cash equivalents

Accounts receivable trade

Prepaid expenses and other current assets

Property and equipment

Right of use assets - operating leases

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

The TAGG 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 August 22, 2022 with the remaining unallocated purchase price recorded as goodwill.

The goodwill recognized in the TAGG 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 $ 3.1 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, 2022.

The components of “Other intangibles”

listed in the above table as of the acquisition date are summarized as follows (in thousands):

Estimated Useful

December 31, 2022

Customer relationships

Developed technology

The above intangible assets are amortized using the straight-line method.

Amortization expense related to this acquisition for the year ended December 31, 2022 was $ 1.3 million.

The intangible assets have a weighted average useful life of approximately 8.86 years.

Amortization expense related to TAGG for the next five years is as follows (in thousands):

From the date of the acquisition through December 31, 2022, TAGG's revenue was $ 64.0 million and operating income was $ 1.1 million.

Choptank Transport, LLC Acquisition

On October 19, 2021 , we acquired 100 % of the equity interests of Choptank.

Total consideration for the transaction w as $ 127.6 million in cash and the settlement of accounts receivable due from Choptank of $ 0.3 million.

On October 19, 2021 , we acquired 100 % of the equity interests of Choptank Transport, LLC (“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.

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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.

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):

Choptank has developed a proprietary technology platform that we will leverage to enhance our truck brokerage service line.

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):

October 19, 2021

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Right of use assets - operating leases

Goodwill, net

Other intangibles

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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.

Amortization expense related to this acquisition for the years ended December 31, 2022 and 2021 was $ 9.1 million and $ 2.3 million, respectively.

The intangible assets have a weighted average useful life of approximately 10.51 years.

Amortization expense related to Choptank for the next five years is as follows (in thousands):

From the date of the acquisition through December 31, 2021, Choptank’s revenue was $ 112.2 million and operating income was $ 0.3 million.

NonstopDelivery, LLC Acquisition

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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.

Amortization expense related to this acquisition for the years ended December 31, 2022 and 2021 was $ 3.5 million and $ 3.7 million, respectively.

The intangible assets have a weighted average useful life of approximately 12.84 years.

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):

While TAGG's actual results are included since August 22, 2022, Choptank's actual results are included since October 19, 2021 and NSD's actual results are included since December 9, 2020, the following unaudited pro forma consolidated results of operations present the effects of TAGG as though it had been acquired as of January 1, 2021 and Choptank and NSD as though they had been acquired as of January 1, 2020 (in thousands, except for per share amounts):

December 31, 2022

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Earnings per share

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.

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 TAGG acquisition as of January 1, 2021 and the Choptank and NSD acquisitions on January 1, 2020.

Revenue from Contracts with Customers

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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.

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.

Hub offers comprehensive multimodal solutions throughout the United States, Canada and Mexico.

As part of our profit improvement initiatives, we have focused on realizing efficiencies between our drayage trucking operation (which supports our intermodal service) and our dedicated trucking operation, including through the sharing of equipment and drivers, and by leveraging a combined set of driver support services including driver recruiting, asset management and safety functions.

As a result, in 2022, we report revenue for these operations under the “Intermodal and Transportation Solutions”

line of business.

We have recast the prior period information to conform with current year presentation.

We operate the following lines of business:

Intermodal and transportation solutions.

Our intermodal and transportation solutions 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.

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.

freight in one of our 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.

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.

Local pickup and delivery services (referred to as “drayage”) between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract.

Our predictive track and trace technology monitors the shipment to ensure that it arrives as scheduled and provides notification to our customer service personnel if there are service delays.

During 2022, approximately 55 % of Hub’s drayage needs were provided by our own drivers and tractors, or by owner operators with whom we contracted.

As of December 31, 2022, we operated trucking terminals at 26 locations throughout the United States, with locations in many large metropolitan areas.

We also contract for services with independent owner-operators who supply their own equipment and operate under our regulatory authority.

These assets and contractual services are used to support drayage for our intermodal service offering and to serve our customers who require high service local and regional trucking transportation using equipment dedicated to their needs.

Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations.

Truck Brokerage.

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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.

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”

The remaining portion of our volume is generated based on shorter term transactional lane-based rates (referred to as “transactional”

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 in October 2021.

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.

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, fulfillment, cross-docking and consolidation services.

Many of the customers for these solutions are consumer goods companies who sell into the retail channel.

Our business operates or has access to approximately 9.5 million square feet of warehousing and cross-dock space across North America, to which our customers ship their goods to be stored and distributed to destinations including residences, retail stores and other commercial locations.

These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’

increasingly stringent supply chain requirements.

In August 2022, we acquired TAGG which enhanced our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs.

The acquisition added scale to our logistics service line and has resulted in cross-selling opportunities.

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 revers e logistics services.

Customers for our final mile services include retailers and consumer goods companies.

We contract with nearly 200 vendors ac ross the United States who provide warehousing and transportation to support our final mile offering.

The following table summarizes our disaggregated revenue by business line (in thousands) for the years ended December 31:

Intermodal and transportation solutions

Truck brokerage

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Balance at December 31, 2022

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 change noted as “other”

in the table above for 2021 refers to the amortization of the income tax benefit of tax goodwill in excess of financial statement goodwill.

The components of the “Other intangible assets”

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Carrier network and agent relationships

Developed technology

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.

Amortization expense was $ 26.6 million and $ 18.7 million for the years ended December 31, 2022 and 2021 , respectively.

The remaining weighted average life of all definite lived intangible assets was 9.57 years and 10.30 years for the years ended December 31, 2022 and 2021 , respectively.

Amortization expense for the next five years is as follows (in thousands):

Amortization expense for the next five years is expected to be as follows (in thousands):

The following is a reconciliation of our effective tax rate to the federal statutory tax rate:

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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.

The remaining net operating loss of $ 0.2 million was fully utilized in 2022.

Our state tax net operating losses total $ 0.2 million.

Some of those state losses have no expiration date while others will expire between December 31, 2023 , and December 31, 2041 .

Management believes it is more likely than not that the loss carryforward deferred tax assets will be realized.

Management believes it is more likely than not that the loss carryforward deferred tax assets will be fully realized.

Our federal incentive tax credit carryforward of $ 0.1 million expires between December 31, 2025 , and December 31, 2028 .

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Gross unrecognized tax benefits - beginning of the year

Gross increases (decreases) related to prior year tax positions

Gross increases related to prior year tax positions

Gross increases related to current year tax positions

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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.

The Inflation Reduction Act of 2022 was signed into law on August 16, 2022, and the CHIPS and Science Act of 2022 was signed into law on August 9, 2022.

These laws implement new tax provisions, primarily a 15 % corporate alternative minimum tax and a nondeductible 1 % excise tax on the fair market value of stock repurchased by publicly traded corporations.

As of December 31, 2022, we do not anticipate any material impact of these provisions which are effective January 1, 2023.

The two acts also provide various tax credits, several of which are transferable or refundable, for the investment in or production of clean-energy effective January 1, 2023.

We will continue to evaluate potential tax benefits available under the acts as additional guidance is issued in future periods.

Fair Value Measurement

The carrying value of cash and cash equivalents, accounts receivable and accounts payable materially approximated fair value as of December 31, 2022 and 2021.

As of December 31, 2022, the fair value of the Company’s fixed-rate borrowings was $ 11.7 million less than the historical carrying value of $ 342.5 million.

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.

As of December 31, 2022 and 2021, our cash and temporary investments were with high quality financial institutions in demand deposit accounts, savings accounts, checking accounts and money market accounts.

Restricted investments included $ 18.1 million and $ 24.3 million as of December 31, 2022 and 2021, respectively, of mutual funds and other security investments which are reported at fair value.

These investments relate to the nonqualified deferred compensation plan that is described in Note 14 and insurance deposits.

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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.

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.

Refer to Note 17 "Subsequent Event" for information regarding the new credit agreement.

We have standby letters of credit that expire in 2023 .

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.

As of December 31, 2022 and December 31, 2021, our letters of credit were $ 43.4 million and $ 41.3 million, respectively.

As of December 31, 2022 and December 31, 2021 , we had no borrowings under our respective credit agreements and our unused and available borrowings were $ 306.6 million and $ 308.7 million, respectively.

We were in compliance with the financial covenants in our debt agreements as of December 31, 2022 and December 31, 2021.

We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers, containers and refrigeration units.

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interest is paid monthly at a fixed annual rate between 2.07 % and 5.82 %

Secured Equipment Notes due on various dates in 2025 commencing on various dates in 2020 and 2021 ;

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 ;

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 ;

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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

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Aggregate principal payments, in thousands, due subsequent to December 31, 2022, are as follows:

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.

In accordance with ASC 842, “Leases,”

(“ASC 842”) which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for all leases, we made an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less.

As of December 31, 2022, we recorded $ 103.3 million of ROU assets and $ 109.3 million of lease liabilities on our consolidated balance sheet.

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.

The increase in ROU assets and lease liabilities was primarily the result of the TAGG acquisition.

The lease liabilities recognized are measured based upon the present value of minimum future payments.

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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.

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 SOFR 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.

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The 2022 Long-Term Incentive Plan (the “2022 Incentive Plan”) was approved by the Board of Directors and subsequently approved by the Company’s stockholders at the 2022 annual meeting.

Upon stockholder approval of the 2022 Incentive Plan, no further grants were authorized under the Company’s 2017 Long-Term Incentive Plan (referred to herein as the “2017 Incentive Plan”).

The 2022 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 s hares were available for future grant under the 2017 Incentive Plan.

The 2022 Incentive Plan is effective as of May 24, 2022.

As of December 31, 2022 , 1,548,848 shares were available for future grant under the 2022 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.

This restricted stock vests ratably (once per year) over a three to five-year period for recipients other than Outside Directors.

Outside Directors’

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Share-based compensation expense for 2022, 2021 and 2020 was $ 20.6 million, $ 20.1 million and $ 17.1 million or $ 15.7 million, $ 14.9 million and $ 13.1 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 o r $ 4.3 million, $ 3.5 million and $ 2.6 million, net of taxes, respectively.

Included in the 2022, 2021 and 2020 share-based compensation expense was $ 5.6 million, $ 5.8 million and $ 4.5 million of performance-based share expenses or $ 4.2 million, $ 4.3 million and $ 3.5 million, net of taxes, respectively.

The fair value of non-vested restricted stock is equal to the market price of our stock at the date of grant.

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Vesting period

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 performance-based restricted stock granted in 2020 earned a 200 % award therefore an additional 4,000 shares were issued to settle the award on the vesting date of January 2, 2023 .

The 2022 grant of performance-based restricted stock resulted in the issuance of 51,794 shares.

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During January 2023, we granted 205,488 shares of restricted stock, which includes 53,437 performance-based shares and 131,915 time-based shares, to certain employees and 20,136 shares of restricted stock to our Outside Directors with a weighted average grant date fair value of $ 79.49 .

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.

These time-based grants vest ratably (once per year) over a five-year period for employees and a one-year period for Outside Directors.

Performance-based grants vest after three years .

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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.

We incurred expense related to the employer match for this plan of $ 6.7 million in 2022 , $ 5.7 million in 2021 and $ 5.2 million in 2020.

In January 2005, we established the Hub Group, Inc.

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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.

We incurred expense of $ 0.3 million per year related to the employer match for this plan in 2022, 2021 and 2020.

The liabilities related to these plans as of December 31, 2022 and 2021 were $ 17.8 million and $ 24.1 million, respectively.

Legal Matters

Robles and Adame

O n 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.

The Company is involved in certain claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits involving employment related claims.

Based on management's present knowledge, management does not believe that any potential unrecorded 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 for settlements or losses determined to be probable and estimable.

However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.

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.

In October 2022, the Board authorized the purchase of up to $ 200 million of our Class A Common Stock pursuant to a share repurchase program (the “

2022 Program ”

Under the 2022 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 fro m employee withholdings as described below, we did no t 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 dur ing 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.

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 approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended, or discontinued at any time.

We purchased 1,478,665 shares for $ 118.1 million during 2022 , 134,329 shares for $ 9.1 million during 2021 and 148,242 shares for $ 8.0 million in 2020 .

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 2022.

The shares repurchased to satisfy the mandatory tax withholding requirements do not reduce the repurchase authority under our share repurchase program.

Shares purchased in connection with the related party transactions are presented as part of publicly announced plan because the transaction was separately approved by our Board of Directors.

Refer to Note 17 “Related Party Transactions”

for additional information.

Maximum Value of

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12/1/2022 - 12/31/2022

Related Party Transactions

In August 2022, the Company entered into a Common Stock Exchange and Repurchase Agreement (the “Agreement”) with entities affiliated with David P.

Yeager, then the Company’s Chairman of the Board of Directors and Chief Executive Officer (collectively, the “DPY Entities”) and entities affiliated with Mark A.

Yeager, the brother of David P.

Yeager (collectively, the “MAY Entities”).

Pursuant to the Agreement, the MAY Entities transferred 243,755 shares of Class B Common Stock, $ 0.01 par value per share, to the DPY Entities in exchange for 342,728 shares of Class A Common Stock, $ 0.01 par value per share (the “Class A Exchange Shares”;

such transfer in exchange for the Class A Exchange Shares is referred to herein as the “Exchange”) .

Immediately after the consummation of the Exchange, the MAY Entities sold to the Company (i) all of the Class A Exchange Shares and (ii) 87,393 shares of Class B Common Stock (the “Remaining Class B Shares”), representing all of the remaining shares of Class B Common Stock owned by the MAY Entities, for an aggregate purchase price of $ 34.8 million (the “Repurchase”

and, together with the “Exchange,”

the “Transaction”

The purchase price for the Repurchase was based on a price per share equal to the closing price of Class A Common Stock on the Nasdaq Global Market on the date of the Agreement.

In accordance with the Company’s certificate of incorporation the Remaining Class B Shares acquired by the Company were cancelled and converted into Class A Common Stock upon acquisition and are not available for reissuance.

The Transaction was approved by the Company’s Audit Committee of the Board pursuant to the Company’s Related Person Transaction Policy approval procedures.

Subsequent Event

In February 2022, we entered into a five year , $ 350 million unsecured credit agreement (the "Credit Agreement").

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.

We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.

Because of the change in the Chief Operating Decision Maker (“CODM”) of the Company at the beginning of 2023, we are evaluating the potential realignment of the business and reportable segment information based on the information the CODM regularly reviews to evaluate performance for operating decision-making purposes, including evaluation and allocation of resources.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data