Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements in this section and other parts of this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements, provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that might cause the actual performance of the Company to differ materially from those expressed or implied by this discussion and, therefore, should be viewed with caution. Further information on the risks that may affect the Company's business is included in filings it makes with the SEC from time to time, including those discussed under the "Risk Factors" section in the 2024 10-K and subsequent filings. The Company assumes no obligation to update any such forward-looking statements.

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 services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Other 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 concluded we have two reportable segments, Intermodal and Transportation Solutions ("ITS") and Logistics, which are based primarily on the services each segment provides.

Intermodal and Transportation Solutions. Our ITS segment 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. This segment includes our trucking operations which provides our customers with local pickup and delivery as well as high service local and regional trucking transportation using equipment dedicated to their needs. In the first nine months of 2025, approximately 83% of our drayage services was provided by our own fleet. We arrange for the movement of our customers' freight in one of our approximately 51,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Drayage between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract. 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. As of September 30, 2025, our trucking transportation operation consisted of approximately 2,300 tractors, 3,100 employee drivers and 4,700 trailers. We also contract for services with approximately 500 independent owner-operators. 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.

Logistics. Our Logistics segment offers a wide range of non-asset-based services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, cross-docking, consolidation and fulfillment services and final mile delivery. Logistics includes our brokerage business which consists of a full range of trucking transportation services, including dry van, expedited, less-than-truckload ("LTL"), refrigerated and flatbed, all of which is provided by third-party carriers with whom we contract. 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 ITS segment. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our final mile delivery offering provides residential final mile delivery and installation of appliances and big and bulky goods. Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States. Our business operates or has access to approximately 7 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.

We are focused 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. Hub's top 50 customers represent approximately 68% of revenue for the nine months ended September 30, 2025, while one customer accounted for more than 10% of our revenue in both segments for both the nine months ended September 30, 2025 and 2024. We use various performance indicators to manage our business. We closely monitor profit levels for our customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service levels are also monitored closely.

The following table includes the one customer that represented 10% or more of our revenue by segment for the nine months ending September 30, 2025 and 2024, respectively:

Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, tariffs, inflation, increases in interest rates, an economic recession and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers' inventory levels, the ability of customers to pay our accounts receivable, 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, economic factors such as the impact of potentially increasing tariffs between trading partners, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2025. Exiting of truckload capacity, retail inventory levels declining leading to restocking demand, a return of typical shipping peak season demands and a stronger used tractor market could have a materially positive impact on our revenue, profitability and cash flows in 2025.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024

The following table summarizes our operating revenue by segment (in thousands):

The following table summarizes our operating income by segment (in thousands):

Total consolidated operating revenue decreased 5% to $934 million in 2025 from $987 million in 2024.

Intermodal and Transportation Solutions ("ITS") revenue remained relatively consistent, increasing slightly to $561 million primarily due to steady intermodal volume and higher intermodal revenue per load, partially offset by lower dedicated revenue, and lower fuel revenue.

ITS operating income increased 17% to $16 million, or 3% of revenue, compared to $14 million, or 2% of revenue, in the prior year primarily due to lower purchased transportation costs, as well as the higher intermodal revenue per load.

Logistics revenue decreased 13% to $402 million from $461 million in prior year primarily due to lower volume and revenue per load in our brokerage business, softened demand in final mile and managed transportation businesses, and lower customer activity in consolidation and fulfillment.

Logistics operating income increased 27% to $24 million, or 6% of revenue in 2025, as compared to $19 million, or 4% of revenue in 2024. This increase was primarily related to continued cost controls, exiting of unprofitable business, and favorable mix between our lines of business. Additionally, there was a decrease in warehouse transfer costs and a reduction in our overall warehouse costs following the completion of our warehouse space consolidation efforts as part of our Network Alignment Initiative in 2024.

The following is a summary of operating results and certain items in the condensed consolidated statements of income as a percentage of revenue (in thousands):

Purchased Transportation and Warehousing

Purchased transportation and warehousing costs decreased 8% to $684 million in 2025 from $740 million in 2024.

Purchased transportation and warehousing costs declined as compared to prior year due to rail cost decreases and lower third-party carrier costs as we have purchased third party transportation more effectively. Additionally, our warehouse costs have decreased after the completion of our warehouse space consolidation efforts as part of our Network Alignment Initiative in 2024.

Salaries and Benefits

Salaries and benefits remained relatively consistent at $143 million in both 2025 and 2024. As a percentage of revenue, salaries and benefits increased to 15.3% in 2025 from 14.5% in 2024. A $2 million increase in driver related expenses due to increased usage of company drivers versus third party drayage, and a $3 million increase in employee incentive compensation were fully offset by a $5 million decrease in salaries and benefits due to a 5% decrease in legacy non-driver, non-warehouse headcount.

Headcount, which includes drivers, warehouse personnel and office employees, was 6,604, which includes 608 employees of EASO, as of September 30, 2025 and 5,900 as of September 30, 2024, respectively. The increase in headcount is primarily due to office and driver employees due to the EASO acquisition.

Depreciation and Amortization

Depreciation and amortization expense decreased to $31 million in 2025 from $32 million in 2024. This decrease was primarily related to $2 million of decreased computer software and container depreciation expense resulting from changes made in the first and third quarters of 2025 to the estimated useful lives of our software and containers, respectively. These decreases were partially offset by an increase in depreciation and amortization due to the EASO acquisition. This expense, as a percentage of revenue, increased to 3.4% in 2025 from 3.3% in 2024. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

Insurance and Claims

Insurance and claims expense remained relatively consistent at $10 million in both 2025 and 2024. These expenses, as a percentage of revenue, increased to 1.1% in 2025 from 1.0% in 2024.

General and Administrative

General and administrative expenses decreased to $27 million in 2025 from $30 million in 2024. These expenses, as a percentage of revenue, decreased to 2.9% in 2025 from 3.0% in 2024.

This decrease in general and administrative expenses resulted from cost control initiatives resulting in a $2 million decrease in third party service costs and a $1 million decrease in temporary office labor costs.

Gain on Sale of Assets, Net

Net gains on the sale of equipment remained relative consistent at $0.5 million in both 2025 and 2024.

Other Income (Expense)

Other expense, net decreased to $1 million in 2025 from $1.4 million in 2024. This decrease is due to an interest expense decrease of $0.5 million primarily due to lower overall debt balances partially offset by higher interest rates as well as a $0.8 million positive increase in Other, net related to the change in the Peso exchange rate due to the addition of EASO. These changes were partially offset by a decrease in interest income of $0.9 million due to lower invested cash balances.

Provision for Income Taxes

The provision for income taxes increased to $10 million in 2025 from $7 million in 2024 due to an increase in pre-tax income and a higher effective tax rate. We provided for income taxes using an effective rate of 24.9% in 2025 and an effective rate of 23.2% in 2024. The third quarter 2025 effective tax rate of 24.9% was higher than the 2024 effective tax rate due to an unfavorable adjustment related to a state tax audit recorded in the third quarter of 2025.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, introducing significant changes to the U.S. federal income tax code. Key provisions include the reinstatement of 100% bonus depreciation and the immediate expensing of research and development expenditures, including a one-time true-up deduction for previously capitalized amounts. While the Company continues to evaluate the longer-term implications of the legislation on its tax position and financial statements, we have incorporated the effects of the OBBBA into our third quarter income tax provision. These changes had no material impact on our effective tax rate.

Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024

The following table summarizes our operating revenue by segment (in thousands):

The following table summarizes our operating income by segment (in thousands):

Total consolidated operating revenue decreased 7% to $2.76 billion in 2025 from $2.97 billion in 2024.

Intermodal and Transportation Solutions ("ITS") revenue decreased 3% to $1.62 billion primarily due to lower intermodal revenue per load, mix, lower fuel revenue and lower volume, as well as lower dedicated revenue.

ITS operating income increased 10% to $44 million, or 3% of revenue, as compared to $40 million, or 2% of revenue in the prior year due to lower purchased transportation costs, lower equipment costs, and improved insurance and claims expenses.

Logistics revenue decreased 13% to $1.22 billion primarily driven by lower volume and revenue per load in our brokerage business, exiting from unprofitable business in consolidation and fulfillment, and softened demand in final mile and managed transportation businesses.

Logistics operating income remained relatively consistent at 5% of revenue in both 2025 and 2024. Operating income was $67 million as compared to $69 million last year primarily driven by lower yields in brokerage margins.

The following is a summary of operating results and certain items in the condensed consolidated statements of income as a percentage of revenue (in thousands):

Purchased Transportation and Warehousing

Purchased transportation and warehousing costs decreased 10% to $2.00 billion in 2025 from $2.21 billion in 2024.

Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes in both the intermodal and brokerage businesses, reductions in external third-party warehouse costs, lower rail, and fuel costs. The reduction in warehouse costs is primarily driven by the completion of our Network Alignment Initiative in 2024.

Salaries and Benefits

Salaries and benefits increased to $436 million in 2025 from $429 million in 2024. As a percentage of revenue, salaries and benefits increased to 15.8% in 2025 from 14.4% in 2024.

The $7 million increase in salaries and benefits was primarily related to increases in driver costs as our usage of company drivers versus third party drayage has increased and warehouse employee costs as we increased our ratio of internal staffing of our warehouses, of $13 million. This increase in expenses was partially offset by a decrease of $6 million due to a 5% decrease in legacy non-driver, non-warehouse headcount.

Depreciation and Amortization

Depreciation and amortization expense decreased to $96 million in 2025 from $108 million in 2024. This decrease was related primarily to $11 million decreased container depreciation expense resulting from changes made in the third quarters of 2024 and 2025 to the estimated useful lives of our containers. Additionally, the decrease is due to a $2 million decrease to computer software depreciation expense resulting from a change made in the first quarter of 2025 to the estimated useful lives of our software. These decreases were partially offset by a $1 million increase in intangible amortization expense. This expense, as a percentage of revenue, decreased to 3.5% in 2025 from 3.6% in 2024. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

Insurance and Claims

Insurance and claims expense decreased to $32 million in 2025 from $35 million in 2024. This decrease was primarily due to decreased claim costs related to auto liability claims in 2025. These expenses, as a percentage of revenue, remained relatively consistent at 1.2% in both 2025 and 2024.

General and Administrative

General and administrative expenses decreased to $83 million in 2025 from $85 million in 2024. These expenses, as a percentage of revenue, increased to 3.0% in 2025 from 2.9% in 2024.

This expense decrease resulted from cost control initiatives resulting in a $2 million and $1 million reduction in temporary office labor costs and third party service costs, respectively, as well as a $1 million decrease in customer bad debt expense. These expense decreases were partially offset by a $2 million vendor settlement expense.

Gain on Sale of Assets, Net

Net gains on the sale of equipment decreased to $0.5 million in 2025 from $1.3 million in 2024. This decrease resulted from both less units sold and a lower average gain per unit sold in 2025 as compared to 2024.

Other Income (Expense)

Other expense, net decreased to $4.0 million in 2025 from $6.0 million in 2024. This decrease is due to an interest expense decrease of $1.8 million primarily due to lower overall debt balances partially offset by higher interest rates and a $2.0 million positive increase in Other, net related to the change in the Peso exchange rate due to the addition of EASO. These changes were partially offset by a decrease of $1.8 million in interest income due to lower invested cash balances.

Provision for Income Taxes

The provision for income taxes increased to $26 million in 2025 from $23 million in 2024 due to an increase in pre-tax income and a higher effective tax rate. We provided for income taxes using an effective rate of 24.2% in 2025 as compared to an effective rate of 22.5% in 2024. The higher effective tax rate in 2025 is the result of an unfavorable adjustment related to a state tax audit and a smaller 2025 benefit on the vest of stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

Our financing and liquidity strategy is to fund operating cash payments and future dividends 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 September 30, 2025, we had $120 million of cash and cash equivalents. In addition, we had $21 million of restricted investments and $27 million of restricted cash, which are held for payments of long-term liabilities and the deferred cash consideration from the EASO transaction, respectively. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes, including our purchase of container assets as part of the Marten Intermodal transaction. In prior years, we have funded our business acquisitions from cash on hand. Our investment agreement with EASO in October 2024 and purchase agreement with SITH in September 2025 are consistent with this approach. Payments for our other investing activities, such as our capitalized technology investments, have been funded by cash on hand or cash flows from operations. Cash used in financing activities including the purchase of treasury stock and dividend payments, have been funded by cash from operations or cash on hand. We have not historically used our Credit Facility to fund our operating, investing, or financing cash needs, though it is available to fund future cash requirements as needed. 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.

Cash provided by operating activities for the nine months ended September 30, 2025 was $160 million, which resulted primarily from net income of $81 million plus non-cash charges of $161 million, partially offset by the changes in operating assets and liabilities of $82 million.

Cash provided by operating activities totaled $160 million in 2025 compared to $194 million in 2024. The $34 million decrease in cash flow was primarily due to a decrease in the change in assets and liabilities of $49 million, partially offset by an increase in non-cash charges of $14 million and an increase in net income of $1 million.

Net cash used in investing activities for the nine months ended September 30, 2025 was $87 million which included capital expenditures of $39 million, purchase of container assets of $53 million resulting from the Marten transaction, and $1 million related to the acquisition of SITH. This activity was partially offset by proceeds from the sale of equipment of $7 million. Capital expenditures of $39 million related primarily to tractors of $19 million, technology investments of $15 million, warehouse equipment of $4 million and the remainder for other transportation equipment.

Capital expenditures decreased by approximately $4 million in 2025 as compared to 2024. The 2025 decrease was due primarily to decreases in warehouse equipment purchases of $3 million, container purchases of $2 million as well leasehold improvements and transportation and other equipment of $1 million each. These decreases were partially offset by increased tractor purchases of $3 million.

In 2025, we estimate capital expenditures will range from $40 million to $50 million. We expect the remaining expenditures to focus on technology investments and warehouse equipment. We do not plan to purchase containers in 2025. We plan to fund these expenditures with cash on hand.

Net cash used in financing activities for the nine months ended September 30, 2025 was $53 million which includes cash used for repayments of long-term debt of $77 million, the purchase of treasury stock of $14 million, dividends paid of $23 million, and cash used for stock tendered for payments of withholding taxes of $7 million, partially offset by proceeds from the issuance of debt of $67 million. Debt incurred in 2025 was used to fund the purchase of transportation equipment, including the container assets in the Marten transaction.

The $112 million decrease in cash used in financing activities for 2025 versus 2024 was primarily due to a decrease in the purchase of treasury stock of $54 million, decrease in cash paid for repayments of debt of $4 million, cash paid for stock related to employee withholding taxes of $2 million, cash paid for finance lease payments of $1 million, as well as an increase in proceeds from the issuance of debt of $50 million.

As a result of anticipated favorable timing differences, primarily related to research and development cost expensing and intangible amortization, we expect our cash paid for income taxes in 2025 to be less than our income tax expense.

See Note 6 of the condensed consolidated financial statements for details related to interest rates and commitment fees.

We have standby letters of credit that expire in 2026. Our letters of credit were $1 million as of both September 30, 2025 and December 31, 2024.

As of September 30, 2025, and December 31, 2024, we had no borrowings under the Credit Agreement and our unused and available borrowings were $449 million and $349 million, respectively. We were in compliance with our debt covenants as of September 30, 2025 and December 31, 2024.

We are continually evaluating the possible effects of current economic conditions and reasonable and supportable economic forecasts in operational cash flows, including the risks of declines in the overall freight market and our customers' liquidity and ability to pay. We are monitoring working capital on a daily basis and are in frequent communications with our customers.

We do not have any off-balance sheet transactions, arrangements, obligations (including contingent obligations) or liabilities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the Company's 2024 10-K for a complete discussion regarding our critical accounting policies and estimates. As of September 30, 2025, there were no material changes to our critical accounting policies and estimates.