HUBG US Equity☆

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 using 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, and final mile delivery 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.

Beginning in the first quarter of 2023, we concluded we have two reportable segments - Intermodal and Transportation Solutions, and Logistics, which are based primarily on the services each segment provides. Results for the years ended December 31, 2022 and 2021 have been recast to conform with current year presentation.

Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions 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 2023, approximately 78% of our drayage services was provided by our own fleet. We arrange for the movement of our customers’ freight in one of our approximately 50,000 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 December 31, 2023, our trucking transportation operation consisted of approximately 2,300 tractors, 2,900 employee drivers and 4,300 trailers. We also contract for services with approximately 460 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, warehousing, fulfillment, cross-docking, consolidation 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 11 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 64% of revenue for fiscal 2023 while one customer accounted for more than 10% of our annual revenue in 2023 in both segments. We use various performance indicators to manage our business. We closely monitor profit levels for our top 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.

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Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, rising 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, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2024. 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 2024.

Strategic Transactions

On December 20, 2023, we acquired 100% of the equity interests of Forward Air Final Mile (“FAFM”). Total consideration for the transaction was approximately $261 million in cash.

On August 22, 2022, we acquired 100% of the equity interests of TAGG. Total consideration for the transaction was approximately $103.4 million in cash.

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.

RESULTS OF OPERATIONS

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

Years Ended

Operating Revenue December 31,

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

Years Ended

Operating Income December 31,

Total consolidated operating revenue decreased 21% to $4.2 billion in 2023 from $5.3 billion in 2022.

Intermodal and Transportation Solutions (“ITS”) revenue decreased 25% to $2.5 billion primarily due to a 14% decrease in intermodal volume due to low transportation demand and an oversupply of truckload carrier capacity, a 14% decrease in intermodal revenue per load (primarily due to lower price, fuel prices and mix) and a 4% decline in dedicated revenues due to lost customers partially offset by growth with existing and new customers.

ITS operating income decreased to $107 million, 4% of revenue, as compared to $349 million, 11% of revenue in the prior year due to lower volume, lower customer rates, and lower surcharges and accessorial income. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 78% in 2023 as compared to 55% in the prior year, as well as an improvement in profitability at our dedicated trucking service line.

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Logistics revenue decreased 14% to $1.8 billion primarily driven by lower revenue per load in our brokerage service line and lower managed transportation and final mile service line revenue, partially offset by an increase in fulfillment revenue. Brokerage volumes were flat compared to the prior year. Logistics operating income was 6% of revenue in both 2023 and 2022. Operating income was $105 million as compared to $126 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.

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

Years Ended

December 31,

Operating expenses:

CONSOLIDATED OPERATING EXPENSES

Purchased Transportation and Warehousing

Purchased transportation and warehousing costs decreased 22% to $3.1 billion in 2023 from $4.0 billion in 2022. As a percentage of revenue, purchased transportation and warehousing costs decreased to 74.8% in 2023 versus 75.6% in 2022 due to cost control initiatives and less third-party drayage usage.

Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs and decreased use of third-party carriers for drayage in ITS.

Salaries and Benefits

Salaries and benefits increased to $553 million in 2023 from $543 million in 2022. As a percentage of revenue, salaries and benefits increased to 13.2% in 2023 from 10.2% in 2022.

This increase was primarily due to $81 million of incremental expense related to the increase of our average company driver count and warehouse employees. The increase includes a $5 million increase in medical benefits, as well as increased expenses resulting from TAGG, which incurred twelve months of expenses in 2023 as compared to just over seven months of expenses in 2022 and FAFM which was acquired in December 2023. These increases were partially offset by a $71 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.

Headcount, which includes drivers, warehouse personnel and office employees, was 5,956, which includes 641 employees of FAFM, as of December 31, 2023 and 5,921 as of December 31, 2022. The increase in headcount was due primarily to the acquisition of FAFM partially offset by decreases in both office employees and company drivers.

Depreciation and Amortization

Depreciation and amortization expense increased to $144 million in 2023 from $132 million in 2022. This increase was primarily due to increased container, tractor and warehouse equipment depreciation expense as well as the amortization of intangibles related to the acquisitions of TAGG and FAFM. This expense, as a percentage of revenue, increased to 3.4% in 2023 from 2.5% in 2022. 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 $49 million in 2023 from $58 million in 2022. This decrease was primarily due to less claim expenses related to both auto liability and workers compensation claims in 2023. These expenses, as a percentage of revenue, increased to 1.2% in 2023 from 1.1% in 2022.

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General and Administrative

General and administrative expenses decreased to $106 million in 2023 from $121 million in 2022. These expenses, as a percentage of revenue, increased to 2.5% in 2023 from 2.2% in 2022.

This expense decrease was primarily due to less impairment of a right-of-use asset and decreases in use tax expense, outside sales commissions, bad debt expense and professional services expense including IT software expense. These decreases were partially offset by higher rent expense, the closing costs related to the FAFM acquisition, higher temporary labor expense as well as increased expenses resulting from TAGG, which incurred twelve months of expenses in 2023 as compared to just over four months of expenses in 2022 and FAFM which was acquired in December 2023.

Gain on Sale of Assets, Net

Net gains on the sale of equipment decreased to $7 million in 2023 from $24 million in 2022. This decrease resulted from both less units sold and a lower average gain per unit sold in 2023 as compared to 2022. We expect gains in 2024 to continue to be lower than prior years due to a softer used tractor market.

Other Income (Expense)

Other Expense decreased to $3 million in 2023 from $7 million in 2022. Interest expense increased to $13 million in 2023 from $7 million in 2022 due primarily to higher interest rates on our debt and higher average debt balances. The expense increase was partially offset by increased interest income of $10 million in 2023 due to higher interest rates on our cash balance and higher cash balances throughout the year.

Provision for Income Taxes

The provision for income taxes decreased to $42 million in 2023 from $111 million in 2022 due a decrease in pre-tax income. We provided for income taxes using an effective rate of 19.9% in 2023 and an effective rate of 23.7% in 2022. The lower effective tax rate in 2023 resulted primarily from a change in state apportionment methodology.

RESULTS OF OPERATIONS

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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

Years Ended

Operating Revenue December 31,

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

Years Ended

Operating Income December 31,

Total consolidated operating revenue increased 26% to $5.3 billion in 2022 from $4.2 billion in 2021.

Intermodal and Transportation Solutions (“ITS”) revenue increased 24% to $3.3 billion primarily due to a 32% increase in intermodal revenue per load (a combination of price, accessorial, fuel and mix) driven by favorable industry demand and supply conditions, and a 4% increase in dedicated revenues, offset by a 4% decrease in intermodal volume.

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ITS operating income increased to $349 million, 11% of revenue, as compared to $169 million, 6% of revenue in the prior year due to higher customer rates, as well as accessorial and surcharge income, partially offset by lower intermodal volume, higher drayage costs, and increased repositioning costs.

Logistics revenue increased 29% to $2.1 billion primarily driven by the impact of a full year of revenue from Choptank (acquired in October 2021) and the partial year revenue contribution from TAGG (acquired in August 2022). We also experienced revenue growth at our Final Mile, Managed Transportation, Consolidation and legacy Brokerage businesses.

Logistics operating income was 6% of revenue in 2022 and 4% of revenue in 2021. Operating income was $126 million as compared to $69 million in 2021, driven by the acquisitions of Choptank and TAGG, as well as yield improvements and higher operating efficiencies across all of our businesses.

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

Years Ended

December 31,

Operating expenses:

CONSOLIDATED OPERATING EXPENSES

Purchased Transportation and Warehousing

Purchased transportation and warehousing costs increased 27% to $4.0 billion in 2022 from $3.2 billion in 2021. As a percentage of revenue, Purchased transportation and warehousing costs increased to 75.6% in 2022 versus 74.9% in 2021 due to increased fuel costs and accessorial expenses.

The increase in purchased transportation costs in 2022, as compared to 2021, was primarily due to increased rail costs, increased fuel costs, higher brokerage volume, higher third-party carrier costs, increased repositioning costs as well as increased business activity.

Salaries and Benefits

Salaries and benefits decreased to $543 million in 2022 from $590 million in 2021. As a percentage of revenue, salaries and benefits decreased to 10.2% in 2022 from 13.9% in 2021.

This decrease was primarily due to $78 million less of incremental expense related to the decreased average company driver count, partially offset by an $8 million increase in incentive compensation expense, a $4 million increase in office employee compensation due to higher headcount and increased expenses resulting from the acquisitions of TAGG and Choptank.

Headcount, which includes drivers, warehouse personnel and office employees, was 5,921 and 4,718 as of December 31, 2022 and 2021, respectively. The increase in the number of drivers and warehouse personnel was partially offset by a decrease in the headcount of office employees. The above statistics include the impact of both the TAGG and Choptank acquisitions.

Depreciation and Amortization

Depreciation and amortization expense increased to $132 million in 2022 from $116 million in 2021. This increase was primarily due to increased container, tractor and warehouse equipment depreciation expense as well as the amortization of intangibles related to the acquisitions of TAGG in August of 2022 and Choptank in October 2021. This expense, as a percentage of revenue, decreased to 2.5% in 2022 from 2.8% in 2021. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

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Insurance and Claims

Insurance and claims expense increased to $58 million in 2022 from $44 million in 2021. This increase was primarily due to higher claims expenses related to both auto liability and workers compensation claims in 2022 as well as higher premium costs. These expenses, as a percentage of revenue, remained consistent at 1.1% in both 2022 and 2021.

General and Administrative

General and administrative expenses increased to $121 million in 2022 from $90 million in 2021. These expenses, as a percentage of revenue, increased to 2.2% in 2022 from 2.1% in 2021.

This expense increase was primarily due to the acquisitions of TAGG in August 2022 and Choptank, which incurred twelve months of expenses in 2022 as compared to just two months of expenses in 2021, as well as increases in legal expenses, higher use tax expense, the impairment write-off of leased assets and higher professional costs related to acquisitions and IT costs.

Gain on Sale of Assets, Net

Net gains on the sale of equipment increased to $24 million in 2022 from $19 million in 2021. This increase resulted from both more units sold and a higher average gain per unit sold in 2022 as compared to 2021.

Other Income (Expense)

Other Expense decreased slightly to $7 million in 2022 from $8 million in 2021. Interest expense increased to $8 million in 2022 from $7 million in 2021 due primarily to higher interest rates on our debt and higher average debt balances. This expense increase was partially offset by increased interest income of $1 million in 2022 due to higher interest rates on our cash balance and higher cash balances.

Provision for Income Taxes

Provision for income taxes increased to $111 million in 2022 from $59 million in 2021 due to significantly higher pre-tax income in 2022. Our effective tax rate was 23.7% in 2022 and 25.7% in 2021. The lower effective tax rate in 2022 compared to 2021 was primarily related to a change in our state apportionment factors, resulting in a reduction to the tax rate. Additionally, we decreased the valuation allowance on state tax incentives due to our increase in pre-tax income.

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 December 31, 2023, we had $187 million of cash and cash equivalents and $21 million of restricted investments. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. In prior years, we have funded our business acquisitions from cash on hand. 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. Cash used in financing activities including the purchase of treasury stock has been funded by cash from operations or cash on hand. We expect our newly declared dividend to be funded by 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 year ended December 31, 2023 was approximately $422 million, which resulted primarily from non-cash charges of $210 million, income of $168 million and changes in operating assets and liabilities of $44 million.

Cash provided by operating activities totaled $422 million in 2023 compared to $458 million in 2022. The $36 million decrease in cash flow was primarily due to a decrease in net income of $189 million, partially offset by an increase in the change in assets and liabilities of $103 million and an increase in non-cash charges of $50 million.

Net cash used in investing activities for the year ended December 31, 2023 was $373 million which included cash used in acquisitions of $261 million and capital expenditures of $140 million, partially offset by proceeds from the sale of equipment of $28 million. Capital expenditures of $140 million related primarily to tractors of $71 million, containers of $41 million, technology investments of $14 million, warehouse equipment of $12 million and leasehold improvements of $3 million.

Capital expenditures decreased by approximately $79 million in 2023 as compared to 2022. The 2023 decrease was due to decreased container purchases of $60 million, less spend on our corporate headquarters of $17 million, less technology investments of $9 million

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and less other transportation equipment purchases of $8 million. These decreases were partially offset by more purchases of warehouse equipment of $12 million, tractors of $3 million and the remainder related to leasehold improvements in 2023.

In 2024, we estimate capital expenditures will range from $55 million to $75 million. We expect transportation equipment purchases to range from $40 million to $45 million, technology investments of approximately $20 million and warehouse equipment and other of approximately $10 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, 2023 was $148 million which includes cash used for the purchase of treasury stock of $144 million, repayments of long-term debt of $106 million, cash used for stock tendered for payments of withholding taxes of $10 million and finance lease payments of $2 million, partially offset by proceeds from the issuance of debt of $114 million. Debt incurred in 2023 was used to fund the purchase of transportation equipment.

The $96 million increase in cash used in financing activities for 2023 versus 2022 was primarily due to an increase in the purchase of treasury stock of $34 million, an increase in cash paid for stock related to employee withholding taxes of $2 million and a decrease in proceeds from the issuance of debt of $65 million, partially offset by a decrease in the repayments of long-term debt of $5 million.

In 2023, cash paid for income taxes was $35 million, of which $23 million related to 2023 and $12 million related to 2022. The $23 million of cash paid for income taxes related to 2023 is less than the 2023 income tax expense of $41 million. This difference is a result of favorable book to tax differences, primarily those related to compensation, which caused 2023 taxable income to be less than 2023 financial statement income before taxes. We expect cash payments in 2024 for taxes to be greater than book tax expense.

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 2024. As of December 31, 2023 and December 31, 2022, our letters of credit were $1 million and $43 million, respectively.

As of December 31, 2023 and December 31, 2022, we had no borrowings under our respective credit agreements and our unused and available borrowings were $349 million and $307 million, respectively. We were in compliance with the financial covenants in our credit agreements as of December 31, 2023 and December 31, 2022.

CONTRACTUAL OBLIGATIONS

Aggregated information about our obligations and commitments to make future contractual payments such as debt and lease obligations as of December 31, 2023 is presented in the following table (in thousands).

Future Payments Due:

Operating Finance Interest

Leases Leases Debt on Debt Total

As of February 16, 2024, Hub signed various operating and finance leases which had not commenced as of December 31, 2023. 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 $7.1 million and $0.3 million for operating and finance leases, respectively.

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Deferred Compensation

Under our Non-qualified 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:

The above future payments are fully funded by our restricted investments comprised of mutual funds and other security instruments as noted in Note 14.

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.

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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% on average 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.

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.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to changes in interest rates. The Company maintains a bank line of credit and 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, 2023.

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, 2023. 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.

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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) 31

Consolidated Balance Sheets - December 31, 2023 and December 31, 2022 32

Notes to Consolidated Financial Statements 36

Schedule II – Valuation and Qualifying Accounts S-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Hub Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hub Group, Inc. (the Company) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 27, 2024 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

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Chicago, Illinois

February 27, 2024

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HUB GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

December 31,

ASSETS

CURRENT ASSETS:

Prepaid expenses and other current assets 41,089 32,914

Right-of-use assets - financing leases 2,522 1,194

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Lease liability - financing leases 1,579 1,175

Lease liability - financing leases 865 -

STOCKHOLDERS' EQUITY:

Common stock

Accumulated other comprehensive loss (129 ) (214 )

The accompanying notes to consolidated financial statements are an integral part of these statements.

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HUB GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

Twelve Months Ended

December 31,

Operating expenses:

Other income (expense):

Other comprehensive income:

Foreign currency translation adjustments 85 (7 ) (16 )

Basic earnings per common share $ 2.65 $ 5.37 $ 2.56

Diluted earnings per common share $ 2.62 $ 5.32 $ 2.53

The accompanying notes to consolidated financial statements are an integral part of these statements.

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HUB GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except shares)

Purchase Price

Class A & B in Excess of Accumulated

Common Stock Additional Predecessor Other Treasury

Shares Paid-in Basis, Net Retained Comprehensive Stock

Issued Amount Capital of Tax Earnings Income Shares Amount Total

Share-based compensation expense - - 20,056 - - - - - 20,056

Foreign currency translation adjustment - - - - - (16 ) - - (16 )

Share-based compensation expense - - 20,426 - - - - - 20,426

Foreign currency translation adjustment - - - - - (7 ) - - (7 )

Share-based compensation expense - - 21,348 - - - - - 21,348

Foreign currency translation adjustment - - - - - 85 - - 85

The accompanying notes to consolidated financial statements are an integral part of these statements.

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HUB GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years Ended December 31,

Cash flows from operating activities:

Impairment of right-of-use asset 2,012 5,874 -

Changes in operating assets and liabilities, net of acquisitions:

Prepaid expenses and other current assets (5,974 ) (3,111 ) (647 )

Cash flows from investing activities:

Cash flows from financing activities:

Stock tendered for payments of withholding taxes (10,148 ) (8,312 ) (9,123 )

Purchase of treasury stock from related party (Note 17) - (34,767 ) -

Effect of exchange rate changes on cash and cash equivalents 40 26 (10 )

Supplemental disclosures of cash paid for:

The accompanying notes to consolidated financial statements are an integral part of these statements.

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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 using 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 December 20, 2023, we acquired Forward Air Final Mile (“FAFM”). On August 22, 2022, we acquired TAGG Logistics, LLC (“TAGG”). On October 19, 2021, we acquired Choptank Transport, LLC (“Choptank”). Refer to Note 4 “Acquisitions” 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, 2023 and 2022, 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: 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 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, 2023 and 2022. 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 $34.7 million and $38.6 million as of December 31, 2023 and 2022, 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.

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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 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. Beginning with the first quarter of 2023, we concluded that we had two reportable segments and two reporting units: Intermodal and Transportation Solutions (“ITS”) and Logistics which are based primarily on the services each segment provides. 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 units is less than their 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 its reporting units to their fair value. If the fair value of a 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 2023 and 2022 as required and determined it was not more-likely-than-not that the fair value of our reporting units 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, 2023 and 2022, we had an accrual of approximately $39.1 million and $38.8 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, 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, 2023, 2022 and 2021, one customer accounted for more than 10% of our annual revenue in both segments. 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.

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The following table includes the one customer that represented 10% or more of our annual revenue by segment during the last three fiscal years:

Years Ended

Customer A December 31,

Total operating revenue 13% 13% 15%

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 $1.2 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 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We are assessing the impact of this guidance on our disclosures; it will not have an impact on our results of operations, cash flows, or financial condition.

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In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”). This ASU will be effective for the Company’s fiscal December 31, 2024 year-end and interim periods beginning in fiscal 2025, with early adoption permitted. We are assessing the impact of this guidance on our disclosures; it will not have an impact on our results of operations, cash flows or financial condition.

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, valuation of acquired goodwill and intangible assets and useful lives of assets. Actual results could differ from these estimates.

Reclassifications: Due to presentation changes made in our consolidated statements of income, certain prior year amounts have been reclassified to conform with the current year presentation.

On January 4, 2024, the Company announced a two-for-one stock split of the Company’s Class A and Class B common stock. The stock split was implemented in the form of a distribution of one additional Class A share for each share outstanding. The record date for the stock split was as of the close of business on January 16, 2024. The Company distribution date of the additional shares was January 26, 2024. As a result of the stock split, the number of authorized shares remained unchanged. Additionally, the par value per share of the common stock remains unchanged. All other share amounts in our consolidated balance sheets, consolidated statements of income and comprehensive income, consolidated statements of stockholders' equity and related footnote disclosures have been adjusted and presented as though the stock split had occurred on January 1, 2021.

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):

Years Ended December 31,

Dilutive effect of restricted stock 630 700 916

Earnings per share net income

NOTE 4. Acquisitions

Forward Air Final Mile Acquisition

On December 20, 2023, we acquired 100% of the equity interest of Forward Air Final Mile (“FAFM”). FAFM provides residential last mile delivery services and installation of big and bulky goods, with a focus on appliances, throughout the United States. Total consideration for the transaction was $261 million paid from cash on hand. The financial results of FAFM, since the date of acquisition, are included in our Logistics segment.

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The acquisition of FAFMexpanded our final mile services to include the delivery and installation of appliances. FAFM provides residential last mile delivery services through a non-asset business model, working with a network of over 350 carriers throughout the country.

The initial accounting for the acquisition of FAFM 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, the Company is in the preparation and final review process 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 FAFM acquisition are preliminary and the measurement period remains open. 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):

Accounts receivable trade $ 28,574

Prepaid expenses and other current assets 2,305

Property and equipment 3,241

Right-of-use assets - operating leases 15,003

Other assets 173

Total assets acquired $ 287,674

Accounts payable trade $ 155

Accounts payable other 2,177

Accrued payroll 1,271

Lease liability - operating leases short-term 6,145

Other long term liabilities 19

Lease liability - operating leases long-term 8,857

Total liabilities assumed $ 26,756

The FAFM 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 20, 2023 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the FAFM 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 $5.1 million of transaction costs associated with this transaction prior to the closing date that are reflected in general and administrative expense and insurance and claims expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2023.

The components of “Other intangibles” listed in the above table as of the acquisition date are preliminarily estimated based on prior final mile acquisitions as follows (in thousands):

Accumulated Balance at Estimated Useful

Amount Amortization December 31, 2023 Life

The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the year ended December 20, 2023 was $0.4 million. The intangible assets have a weighted average useful life of approximately 14.37 years.

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

Total

From the date of the acquisition through December 31, 2023, FAFM’s revenue was $6.4 million and operating income was $0.2 million.

FAFM's actual results are included in our consolidated financial statements since the acquisition date of December 20, 2023. The following unaudited pro forma consolidated results of operations present the effects of FAFM as though it had been acquired as of January 1, 2022 (in thousands, except for per share amounts):

Twelve Months Ended Twelve Months Ended

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 and FAFM. 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 FAFM acquisition as of January 1, 2022.

NOTE 5. Segment Reporting

As we have continued to expand our service offerings and diversify our business, we have also made changes to the financial information that our CEO, who has been identified as our Chief Operating Decision Maker (CODM), uses to make operating and capital decisions. Beginning in the first quarter of 2023, we concluded that we have two reportable segments: Intermodal and Transportation Solutions (“ITS”) and Logistics which are based primarily on the services each segment provides. We have recast the prior period information to conform with the current year presentation. Our ITS segment includes our asset-light business lines: intermodal and dedicated trucking. Our Logistics segment includes our non-asset business lines: managed transportation, truck brokerage, final mile, consolidation, warehousing and fulfillment. We operate the following segments:

Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions 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 2023, approximately 78% of our drayage services was provided by our own fleet. We arrange for the movement of our customers’ freight in one of our approximately 50,000 containers. As of December 31, 2023, 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. 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 December 31, 2023, our trucking transportation operation consisted of approximately 2,300 tractors, 2,900 employee drivers and 4,300 trailers. We also contract for services with approximately 460 independent owner-operators.

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Logistics. Our Logistics segment offers a wide range of services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking, consolidation 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 11 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. Logistics also includes our brokerage business which provides third-party truckload, less-than-truckload (“LTL”), flatbed and temperature-controlled needs.

The following table summarizes our financial and operating data by segment (in thousands):

Years Ended

Operating Revenue December 31,

Years Ended

Operating Income December 31,

Years Ended

Depreciation and Amortization December 31,

Separate balance sheets are not presented by segment to our CODM. Our CEO uses consolidated asset information to make capital decisions.

NOTE 6. Goodwill and Other Intangible Assets

Due to the change in segments in the first quarter of 2023, consolidated goodwill was reallocated to the two new reporting units based on their relative fair values. The Company performed an evaluation before and after the change and concluded it was not more-likely-than-not that the fair value of our reporting units was less than its carrying value. There were no accumulated impairment losses of goodwill at the beginning of the period.

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The following table presents the carrying amount of Goodwill by segment (in thousands):

ITS Logistics Consolidated

The components of the "Other intangible assets” are as follows (in thousands):

Net

Gross Accumulated Carrying

As of December 31, 2023: Amount Amortization Value Life

Net

Gross Accumulated Carrying

As of December 31, 2022: Amount Amortization Value Life

The above intangible assets are amortized using the straight-line method. Amortization expense was $27.2 million and $26.6 million for the years ended December 31, 2023 and 2022, respectively. The remaining weighted average life of all definite lived intangible assets was 11.32 years and 9.57 years for the years ended December 31, 2023 and 2022, respectively. Amortization expense for the next five years is expected to be as follows (in thousands):

Total

NOTE 7. Income Taxes

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

Years Ended December 31,

U.S. federal statutory rate 21.0 % 21.0 % 21.0 %

State taxes, net of federal benefit 0.4 3.5 3.5

Federal and state incentives (1.9 ) (1.4 ) (0.5 )

State law changes (0.2 ) 0.4 1.1

Permanent differences 0.6 0.2 0.6

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The following is a summary of our provision for income taxes (in thousands):

Years Ended December 31,

Current

Deferred

The following is a summary of our deferred tax assets and liabilities (in thousands):

December 31,

Operating loss carryforwards 151 166

We are subject to income taxation in the United States, numerous state jurisdictions, Mexico, Canada, and India. 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.

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, 2024, and December 31, 2042. 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. Our state incentive tax credit carryforwards of $8.1 million expire between December 31, 2024, and December 31, 2027. Management believes it is more likely than not that approximately $6.7 million of the incentive carryforward deferred tax assets will be realized and a valuation allowance of $1.2 million has been established for the remainder which are not expected to be realized.

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As of December 31, 2023 and December 31, 2022, the amount of unrecognized tax benefits was $12.9 million and $11.1 million, respectively. If recognized, these benefits would decrease our income tax provision by $10.2 million and $9.0 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 $ 11,116 $ 6,647

Gross increases related to prior year tax positions 761 425

Gross increases related to current year tax positions 1,460 4,665

Lapse of applicable statute of limitations (478 ) (621 )

Gross unrecognized tax benefits - end of year $ 12,859 $ 11,116

We recognize interest and penalties related to income tax liabilities in our provision for income taxes. In 2023, we included $0.1million in our provision for income taxes.

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. 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, Though some provisions of the CARES Act and CAA do impact the Company, there was no material effect on the Company’s consolidated financial condition or results of operations for the years ended December 31, 2023, 2022 or 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. We do not anticipate any other material impact of these provisions. 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.

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, 2023 and 2022. As of December 31, 2023, the fair value of the Company’s fixed-rate borrowings was $1.4 million less than the historical carrying value of $350.7 million. As of December 31, 2022, the $342.5 million carrying value of the Company's fixed-rate borrowings approximated the fair value. 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, 2023 and 2022, 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 $20.8 million and $18.1 million as of December 31, 2023 and 2022, 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.

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.

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NOTE 9. Property and Equipment

Property and equipment consist of the following (in thousands):

December 31,

Construction in process - 902

Depreciation expense related to property and equipment was $114.4 million, $103.1 million and $95.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

NOTE 10. Long-Term Debt and Financing Arrangements

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.

We have standby letters of credit that expire in 2024. As of December 31, 2023 and December 31, 2022, our letters of credit were $0.9 million and $43.4 million, respectively.

As of December 31, 2023 and December 31, 2022, we had no borrowings under our respective credit agreements and our unused and available borrowings were $349.1 million and $306.6 million, respectively. We were in compliance with the financial covenants in our debt agreements as of December 31, 2023 and December 31, 2022.

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.

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Our outstanding Notes are as follows (in thousands):

December 31, December 31,

Aggregate principal payments, in thousands, due subsequent to December 31, 2023, are as follows:

NOTE 11. Leases

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, 2023, we recorded $213.3 million of ROU assets and $224.8 million of lease liabilities on our consolidated balance sheet. 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. 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. 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, 2023, 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.

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As of December 31, 2023, 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 $7.1 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 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. As of December 31, 2023, we are in the process of evaluating the leases for the FAFM acquisition.

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:

Years Ended December 31,

Amortization of finance right-of-use assets $ 2,650 $ 2,075 $ 2,304

Interest on finance lease liabilities 194 13 29

The following table represents the maturity of operating and finance lease liabilities (in thousands):

Operating Leases Finance Leases Total

Operating Leases Finance Leases Total

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The following table presents supplemental cash flow and noncash information related to leases:

Years Ended December 31,

Operating cash flows from finance leases 194 13 29

Right-of-use assets obtained in exchange for new $ (3,978 ) $ (2,017 ) $ (72 )

financing lease liabilities (net of disposals)

operating lease liabilities (net of disposals)

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 2.14 years 0.6 years

Weighted average remaining lease term — operating leases 5.66 years 4.06 years

Weighted average discount rate — finance leases 4.29% 1.20%

Weighted average discount rate — operating leases 5.47% 4.51%

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 $56.4 million and $57.3 million as of December 31, 2023 and 2022, respectively. The 2023 balance consists of capitalized implementation costs of $12.0 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 $44.4 million, net of accumulated amortization, which are classified in property and equipment in our consolidated balance sheet. The 2022 balance consists of capitalized implementation costs of $11.4 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 $45.9 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 $16.7 million and $15.7 million in 2023 and 2022, 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 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 2022 Incentive Plan is effective as of May 24, 2022.

As of December 31, 2023, 2,888,438 shares were available for future grant under the 2022 Incentive Plan.

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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 2023, 2022 and 2021, 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 2023, 2022 and 2021 was $21.2 million, $20.6 million and $20.1 million or $17.0 million, $15.7 million and $14.9 million, net of taxes, respectively. Included in the 2023, 2022 and 2021 share-based compensation expense was $6.3million, $5.6 million and $5.8 million of performance-based share expenses or $4.8 million, $4.2 million and $4.3 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.

The following table summarizes the non-vested restricted stock activity for the year ended December 31, 2023:

Time-Based Performance-Based

Restricted Stock Restricted Stock

Weighted Weighted

Time-Based Average Performance-Based Average

Restricted Stock Grant Date Restricted Stock Grant Date

Shares Fair Value Shares Fair Value

The following table summarizes the restricted stock granted during the respective years:

Weighted average grant date fair value $ 37.53 $ 41.46 $ 33.01

Vesting period 1-5 years 1-5 years 1-5 years

The performance-based restricted stock granted in 2021 earned a 200% award therefore an additional 94,956 shares were issued to settle the award on the vesting date of January 2, 2024. The 2023 grant of performance-based restricted stock resulted in the issuance of 106,874 shares. The performance-based restricted stock grants were 103,588 in 2022 and 159,216 in 2021. The weighted average grant date fair value of these shares was $39.75 in 2023, $42.12 in 2022, and $28.50 in 2021.

The total fair value of restricted shares vested during the years ended December 31, 2023, 2022 and 2021 was $26.1 million, $22.7 million and $25.4 million, respectively.

As of December 31, 2023, 2022, and 2021, there was $34.0 million, $41.3 million and $45.5 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 2023, 2022, and 2021 of 2.75 years, 2.67 years and 3.11 years, respectively.

Additionally, as of December 31, 2023, 2022, and 2021 there was $7.2 million, $7.6 million and $6.5 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 2023, 2022 and 2021.

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During January 2024, we granted 437,166 shares of restricted stock, which includes 100,862 performance-based shares and 336,304 time-based shares, to certain employees and 35,088 shares of restricted stock to our Outside Directors with a weighted average grant date fair value of $45.62. 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.

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 related to the employer match for this plan of $8.5 million in 2023, $6.7 million in 2022 and $5.7 million in 2021.

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, 2023 and 2022. 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 this plan in 2023, 2022 and 2021. The liability related to the Plan as of December 31, 2023 and 2022 were $20.5 million and $17.8 million, respectively.

NOTE 15. Legal Matters

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.

NOTE 16. Stock Repurchase Plans

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. 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. The 2022 Program was terminated in October 2023 in conjunction with the authorization of the 2023 Program (as defined below) and as a result, no shares were purchased under the 2022 Program in the fourth quarter of 2023.

In October 2023, the Board authorized the purchase of up to $250 million of our Class A Common Stock pursuant to a share repurchase program (the “2023 Program”), which replaces the 2022 Program. Under the 2023 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. 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 4,020,598 shares for $153.9 million during 2023, 2,957,330 shares for $118.1 million during 2022 and 268,658 shares for $9.1 million in 2021. These amounts include the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock, which do not reduce the repurchase authority under our share repurchase program.

NOTE 17. 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 685,456 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

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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.

NOTE 18. Subsequent Event

On February 22, 2024, the Board declared a quarterly cash dividend of $0.125 per shareon the Company’s Class A and Class B common stock. The dividend is scheduled to be paid on March 27, 2024 to stockholders of record as of March 8, 2024. The declaration and payment of the quarterly cash dividend are subject to the approval of the Board at its sole discretion and compliance with applicable laws and regulations.

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, 2023, 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, 2023.

No significant changes were made in our internal control over financial reporting during the fourth quarter of 2023 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, 2023. 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, 2023.

On December 20, 2023, we completed the acquisition of Forward Air Final Mile (“FAFM”). 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 FAFM from our assessment of our internal control over financial reporting as of December 31, 2023. Management will continue to evaluate our internal controls over financial reporting as we complete our integration. As of December 31, 2023, FAFM represented 9.9% of total assets and 16.0% of net assets. For the year ended December 31, 2023, FAFM represented 0.2% of revenues and 0.1% 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.

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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, 2023, 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, 2023, 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 Forward Air Final Mile (“FAFM”), which was acquired on December 20, 2023 and is included in the 2023 consolidated financial statements of the Company and constituted 9.9% and 16.0% of total and net assets, respectively, as of December 31, 2023 and 0.2% and 0.1% 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 FAFM.

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, 2023 and 2022, 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, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(b), and our report dated February 27, 2024 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 27, 2024

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Item 9B. OTHER INFORMATION

Not applicable

Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 is incorporated by reference to our Proxy Statement. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I, Item 1, beginning under “Information About Our Executive Officers.”

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 make any substantive amendments to the finance code of ethics or grant any waiver from a provision of the code to our principal executive officer, principal financial officer or principal accounting officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference to our Proxy Statement.

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, 2023:

Equity compensation plans approved by security holders — $ — 2,888,438

Equity compensation plans not approved by security holders — — —

(b) Other Information. The information required by this Item 12 regarding security ownership of certain beneficial owners and our management is incorporated by reference to our Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated by reference to our Proxy Statement.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated by reference to our Proxy Statement.

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PART IV

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:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets - December 31, 2023 and December 31, 2022

Consolidated Statements of Income and Comprehensive Income - Years ended December 31, 2023, December 31, 2022 and December 31, 2021

Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2023, December 31, 2022 and December 31, 2021

Consolidated Statements of Cash Flows - Years ended December 31, 2023, December 31, 2022 and December 31, 2021

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.:

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SCHEDULE II

HUB GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Allowance for uncollectible trade accounts

Balance at Charged to Charged to Balance at

Year Ended Beginning of Costs & Other End of

December 31: Year Expenses Accounts (1) Deductions (2) Year

Deferred tax valuation allowance

Balance at Charged to Balance at

Year Ended Beginning of Costs & End of

December 31: Year Expenses Year

(1) Expected customer account adjustments charged to revenue and write-offs, net of recoveries.

(2) Represents bad debt recoveries.

S-1

(c) Exhibits INDEX TO EXHIBITS

Number Exhibit

4.1 Description of Hub Group, Inc. Class A Common Stock, $.01 par value

21 Subsidiaries of the Registrant

23.1 Consent of Ernst & Young LLP

24.1 Powers of Attorney (included as part of the signature pages hereto)

31.1 Rule 13a-14(a) Certification of Phillip D. Yeager, Chief Executive Officer

31.2 Rule 13a-14(a) Certification of Kevin W. Beth, Chief Financial Officer

97 Hub Group, Inc. Compensation Clawback Policy

* Management contract or compensatory plan or arrangement.

Item 16. FORM 10-K SUMMARY

None.

SIGNATURES

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 behalf by the undersigned, thereunto duly authorized.

Date: February 27, 2024 HUB GROUP, INC.

By /s/ PHILLIP D. YEAGER

Phillip D. Yeager

Vice Chairman of the Board of Directors, President and Chief Executive Officer

We, the undersigned directors and officers of the registrant, hereby severally constitute Phillip D. Yeager and Kevin W. Beth 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:

Title Date

Phillip D. Yeager

Kevin W. Beth

David P. Yeager

/s/ Phillip D. Yeager Director February 27, 2024

Phillip D. Yeager

/s/ Mary H. Boosalis Director February 27, 2024

Mary H. Boosalis

/s/ Lisa Dykstra Director February 27, 2024

Lisa Dykstra

/s/ Michael E. Flannery Director February 27, 2024

Michael E. Flannery

/s/ James C. Kenny Director February 27, 2024

James C. Kenny

/s/ Peter B. McNitt Director February 27, 2024

Peter B. McNitt

/s/ Jenell Ross Director February 27, 2024

Jenell Ross

/s/ Martin P. Slark Director February 27, 2024

Martin P. Slark

/s/ Gary Yablon Director February 27, 2024

Gary Yablon