Welcome to the Hub Group conference call announcing the acquisition of CaseStack. Dave Yeager, our CEO, will begin the discussion. Following Dave's prepared presentation, there will be a question-and-answer session. Donald Maltby, Chief Operating Officer, Terri Pizzuto, Chief Financial Officer, and Geoff DeMartino, Vice President of Corporate Development, will join us for the question-and-answer session. Any forward-looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may happen in the future. Statements that are forward-looking can be identified by the use of the words such as believe, expect, anticipate, estimate, project, and variations of these words. Please review the cautionary statements in the release.
In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward-looking statements. As a reminder, this conference call is being recorded. It is now my pleasure to turn the call over to Dave Yeager. You may begin.
Thank you for joining us today. We announced our agreement to acquire CaseStack for a purchase price of $255 million. CaseStack is a non-asset-based logistics provider that has two business lines. 80% of CaseStack's revenue is derived from providing consolidation services to consumer packaged goods companies. In this business, CaseStack utilizes warehouse locations in seven strategic markets across North America. These warehouses act as mixing centers, where goods from multiple shippers are consolidated into full truckloads for delivery into retail distribution centers. CaseStack's consolidation service allows its customers to achieve compliance with retail delivery requirements while saving money on transportation. The other 20% of the revenue is derived from truck brokerage, most of which is LTL. CaseStack services will provide value-added solutions that Hub will offer to our clients.
We intend to accelerate the growth of the business with opportunities from Hub Group's diverse customer base. CaseStack's focus on consumer packaged goods and retail verticals match up well with Hub, where these sectors account for over 70% of our revenue. We believe the potential for cross-selling synergies is substantial. We have long had five key criteria for acquisitions: diversify our service offerings, a good cultural fit, a strong management team, not a fixer-upper, and immediately accretive. CaseStack meets all five of these criteria. CaseStack has experienced significant growth under the leadership of its founder and CEO, Dan Sanker. We are pleased that Dan and his management team will continue to lead the business. We are very excited to welcome the company's 200-
The question-and-answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touchtone phone. Our first question is from Scott Group with Wolfe Research.
Good morning. Thank you. This is actually Ryan Greenwald on for Scott. Can you just clarify what consolidation services for consumer packaged goods really means? And is this something that you guys can expand to other verticals? And is e-commerce ultimately good or bad for the business?
Sure. What it means is that, as you're undoubtedly aware, there's the retailers have become much more sophisticated on their inbound transportation, and have penalties and fines, in fact, if something, if the product that's delivered is not of the full amount that they had ordered, or on time. What CaseStack does is they consolidate less-than-truckload to the retailer's distribution centers. It gets it there more timely, with less damage, and also is less expensive than traditional LTL because they focus specifically on that distribution center for the retailer. As far as e-commerce, I think what we're seeing with e-commerce is there's no question that there obviously there's more speed, but there's also, with e-commerce, there's a proliferation of SKUs at this point in time.
And so what you're getting is some slower-moving product. And again, I think that is going to expand the amount that's required for warehousing, as well as the consolidation of LTL shipments that go directly into the retailer distribution network.
That's helpful. Thank you. Some financial questions. Can you just touch on what % of the EBITDA is D&A, the annual CapEx, the current growth rate, and whether you guys will be including amortization in the earnings numbers next year?
The current D&A is about $2.5 million. When we close on CaseStack, we'll have intangible amortization of about $11 million on top of the $2.5 million historical. The EBITDA has grown at a 31% CAGR from 2014 to 2018. Any other questions, Ryan? CapEx-
The annual CapEx.
Annual CapEx is very minimal. The only CapEx is internally developed software, and CaseStack currently has about $5 million of internally developed software on their books.
Thank you. And then just lastly, how does this kind of impact your 4% margin target for next year?
You know, it should be a benefit if you exclude the amortization of the intangibles and the compensation expense associated with the restricted stock. Historically, CaseStack operating margins have been between 8% and 9%.
Great. Thank you very much for the time.
Our next question is from Kevin Sterling with Seaport Global.
Thank you. Good morning, everyone. Congratulations on the deal.
Thanks, Kevin.
Terri, this question might be for you. Well, as we think about CaseStack going forward, will it be a separate line item on the P&L, or will you mold it into another division? I'm just curious as to how we should think about, you know, CaseStack as you're reporting on your P&L.
Yeah, good question. The truck brokerage services, which are about 20% of revenue, will be included in our truck brokerage service line, and the logistics consolidation services will be included in our logistics service line.
Okay, great. That's helpful. Thank you. Also, Dave, maybe you can touch on this: How about seasonality in the business? I'd imagine, I imagine Q4 obviously is very busy for CaseStack and even Q1 with the returns business. But how should we think about seasonality in the business throughout the year?
Well, if when you look at it, it's not apparel-based, so it's really a lot of it is, in fact, foods and beverages. So it doesn't have a tremendous amount of seasonality. It's a pretty consistent business, so we're not going to see a great deal of that.
Okay. Also, as we think about as you integrate CaseStack into the Hub family, well, you, do you envision putting any maybe of their business into your intermodal network? How should we think about the complementary aspect of your intermodal network with what CaseStack does?
That's a really good point, Kevin, because we do see a lot of opportunity. The leg one, which is the customer getting the truckload into their warehouse so that they can then break it down into less than truckload shipments that go directly to distribution, the retailer distribution system. They don't handle any of that inbound. It's about 50,000 units per year, truckloads.
Of course, that's what we do. We see a lot of opportunity there for us to be able to handle the business of the leg one and give the customer, obviously, the visibility right from their manufacturing plant all the way to delivery at the retailer distribution center. Yes, there's a lot of opportunity. They also, of course, manage the truckload of LTL that goes from the warehouse to the retailer distribution network. And so there's definitely some opportunities for Hub to compete for that business as well.
Oh, great. Okay. And lastly, is your M&A pipeline still pretty full?
It's being rebuilt. This took a lot of time from the team here last few months to get it to fruition. But there is a pipeline, and we're continuing to look at opportunities.
Well, great. That's all I had today, and congrats on the deal once again. Thank you for your time.
Thanks, Kevin.
The next question is from Ben Hartford with Baird.
Hey, good morning. Could you talk a little bit about the thoughts on integration of sales functions between the entities and perhaps the technology platform? Is there anything that you'll be able to apply from CaseStack with the core Hub business?
As far as the sales organizations, they will remain very separate. As an example, the LTL brokerage, we really like the business model. They're very good at it. They've got a variable compensation model that's very functional, so we would not want to do anything with their truck brokerage or their logistics services business. Go ahead, Don.
No, no, we, yeah, we're going to be able to funnel the opportunities from the Hub Group sales guys, similar to our other business lines, by raising their hand when there's an opportunity and have a disciplined person that knows that business well to help bring it through the pipeline.
I guess at that point... Oh, sorry, go ahead.
Oh, sorry. I was going to move on to the technology piece that you asked about.
Oh.
Yes, CaseStack recognized the need to leverage technology, and over the years, they custom-built solutions that uniquely support the vertical.
So I think what, in essence, what they do have, their LTL truck brokerage system, which has been developed in-house, is very, very slick from what we've seen. We think that there's definitely some applications for it to act in our brokerage as well, our truckload brokerage.
Okay, that's good. Don, back to the point about sales and the funneling, Dave, I think you'd mentioned the cross-selling opportunity you thought was substantial. How will cross-selling be incentivized?
Well, I think the number one, we're not obviously changing any of their compensation structures. But I think that there's a lot of opportunities in as much as we have very different customer bases in as much as the CPG clients. Although, of course, CPG is about 33%-34% of Hub's overall revenue, we deal with large CPG customers. Theirs are more mid-sized and smaller. And so I think that what we'll see is, despite the fact that some of our large clients, the more large CPG clients do ship a lot of truckloads into the retailers, they do have a fair amount of LTL that goes there also.
I think that we'll be able to go and offer those services as it will create, again, greater visibility, better on-time performance, as well as cost savings.
Are there any immediate plans to expand their office footprint? You highlighted the two there. Are they gonna have a presence in Oak Brook first? And second, is there a 3- to 5-year target in terms of the number of offices that they will have?
No, and their structure is very unique in as much as, and we can get into that, a lot more on Wednesday. But, no, they're not, we're not going to have any footprint, in Oak Brook. They're based, their LTL truck brokerage is in Arkansas. It'll remain there, and a lot of their corporate people are in Santa Monica, California, and would remain there as well. We do hope, obviously, that we're able to grow the business, and so those locations, will grow with that.
Okay. And then, Terri, final question, that the 8%-9% margin that you mentioned for CaseStack, that's 8%-9% EBITDA as a % of gross rev, is that right?
Yes. Uh-huh, that's excluding the amortization. Yeah. Yep.
Right. Okay, great. Thanks for the time. Appreciate it.
The next question is from Justin Long with Stephens.
Thanks. Good morning, and congrats on the deal. So Terri, maybe to start with one for you, looking at the purchase price, do you have an initial estimate on how much will be funded with cash versus debt? And then on the accretion, I know you said you expect accretion in 2019, but I was wondering if you could get a little bit more specific around that and share the expectation for year one EPS accretion, excluding amortization that's non-cash.
Absolutely. In terms of the cash, that we'll pay for CaseStack, we had about $267 million at the end of September. At the end of October, we had $300 million of cash. So best guess is that we'll be able to fund CaseStack in early December with, no borrowings on our line of credit. And then in terms of your question on, what's the accretion in 2019, we estimate between 40 and 45 cents of accretion in 2019, excluding the amortization of intangibles and the compensation expense related to restricted stock that we're issuing in connection with the deal.
Very helpful. Thank you. And you mentioned the cross-selling opportunity, but is there an operating synergy opportunity here as well? And if so, is that something you're baking into that accretion estimate?
We do believe that there's some opportunity to combine our purchasing power together, and, as a result of that, should be able to get some lower underlying transportation costs. We do see that as a potential synergy.
We do not have a lot of synergies baked into that $0.40-$0.45. Just $2 million worth.
Okay, that's helpful. And, you know, you mentioned CapEx, it's pretty minimal to the question before. How should we be thinking about the return profile of this business relative to your existing businesses?
Well, because the company -- did you want to go over? Because the company's a non-asset business model, the return on capital for new business opportunities is very high. You know, as of September 30, CaseStack had about $5 million of working capital and $5 million of capitalized software costs. So we think in the long run, it's gonna be very helpful to our ROIC.
Okay. And what is the ROIC of the business today, and do you see that number remaining pretty consistent going forward?
Yeah, I mean, the business today is, you know, if you, you know, ballpark $20 million of operating income after tax $15 million, you know, they're generating $15 million of operating income after tax on a base of, you know, call it $10 million of invested capital. So it's, you know, north of 100%.
Okay, great. And last question from me, but you've been pretty clear about why you divested Mode and where you were looking to replace it with another business that was a better strategic fit. But now that this is officially announced, can you just go through the key aspects that you feel make CaseStack a better fit than Mode?
Absolutely. You know, I think number one, and we always say this with our, five basic assumptions on any acquisition, is it really is a good cultural fit, and it is an excellent management team. We found that very attractive. From a business perspective, we—CaseStack is that they're an industry leader, that we believe has a very defensible market position, and has a scale advantage already, that would make it difficult for another competitor, to enter into the space and be really effective. We've talked a lot about diversifying our product offering. This, of course, brings us into LTL consolidation. It brings us, somewhat into warehousing, as that is a portion of their business as well, as well as the LTL truck brokerage.
We've always been f ocused on projects on load boards or on just general truckload LTL or truckload brokerage. These guys have the expertise, the structure, the people that can really allow us to offer an LTL truck brokerage product to our broader client base. So I think that's really important as well. We like the fact that they're very focused on CPG customers, and also it brings a value to our retailers, to our large retailer base. So we think that, again, that is a very important factor. It integrates us yet further as dedicated trucking did, and the intermodal product, it continues to integrate us with our large retailers. And I think that, you know, last but not least, we see a lot of opportunity for growth.
We see the, you know, the retailers, and we've gone through this before, the becoming much, much more sophisticated on controlling their inbound, and having stipulations, and this goes across the board with all retailers. They're becoming much tougher on it. And LTL is much more difficult or has traditionally been outside of CaseStack with a traditional supplier to be 100% on time to the retailer for the delivery. And CaseStack brings that to it. And in addition, advantages, they're less expensive than traditional LTL. So, we think it's got a lot of future, a lot of runway. The cross-selling opportunities that we had talked about are critically important. We see over time, a lot of synergies there.
And it's non-asset-based, and that's one of the item areas we have been focused on, is looking for companies that have less asset intensity.
Great, that's really helpful. Appreciate the time, and I'll see you guys soon.
Okay, great. See you soon. Thanks, Justin.
The next question is from Tom Wadewitz with UBS.
Yeah, good morning. Maybe to start with, you've alluded to the, the type of customers. Can you identify any of the, the largest customers for CaseStack?
Tom, I think we'd prefer not to do that. That's some proprietary information. But I think what we can tell you is that no single customer is over 5%. And if you look at the top 25, they represent 25%. So it's a very, it's a lot of diversity as far as the customer base. It's, it's no one customer is dominant.
We can also tell you that the consumer packaged goods are dry goods, no apparel, including, you know, 65% is my favorite, food and beverage. Another 7% is health and beauty, and 5% are cleaning products.
So, in the food and beverage, is there a decent mix of refrigerated or this is all non-refrigerated type business?
It's dry goods, not refrigerated.
Okay, it's dry. Okay. And it sounds like there's a benefit in terms of maybe not the largest consumer goods companies, just in terms of maybe they have the scale to do some of this on their own. Or am I misunderstanding this, that their approach and the value they add would be applicable kind of across the spectrum of, you know, largest consumer goods companies to ones that are a bit more mid-sized?
Yeah, I mean, if you look at the retail space today, this is Don, a lot of the retailers are putting penalties on their providers if they don't hit a certain delivery date. Where CaseStack comes into play is to sell to the small- and medium-sized CPG companies and allow them the ability to store product that at a major market area and support a retail network. Where we have the opportunity is with our larger CPG companies that may ship to the same retailers, that have the same penalties against them, that would allow us to go in there and offer them programs that they don't have today. So there's a twofold, right? There's a small- and medium-sized retailer, excuse me, CPG company that's trying to support their customer, the Walmarts, the Targets, you name them.
And then the same side on our business, the Hub business, those same shippers that may not have truckloads, they may have crumbs going into those facilities, we would handle that. So we think there's an opportunity on both sides.
Okay, so do you think the solution would apply to some of the bigger CPG companies as well?
Absolutely.
Okay. Great. In terms of the, the footprint, I think you talked about seven facilities. I don't—I guess I don't necessarily have a clear picture of whether those are, they're, you know, more cross-docks or warehouses, or it sounds like maybe it's a hybrid. Are those owned or leased facilities? And then when you think about growth going forward, is footprint expansion and adding facilities necessary, or is this the type of thing where there's substantial capacity at the existing footprint and you don't have to do much with more facilities?
Yeah, look, so CaseStack is not asset-based, so the facilities that they're in are, you know, are provided through their, through warehousing companies that CaseStack is contracting with. They're in five major markets, Southern California, Dallas, Atlanta, Chicago, Pennsylvania, and then they have smaller facilities in the Pacific Northwest, and in Toronto. So just under about 3 million sq ft is occupied by CaseStack today. We think those are the markets we need to be in. We don't anticipate expanding into new geographies, but we could grow the footprint within those markets as demand requires.
Okay, so there, there's a good ability to grow without adding a whole lot of cost, it sounds like, or at least, without adding capital?
Certainly no capital, right. That's right.
Right. Okay, great. Well, sounds like a you know, good fit for Hub, and congratulations on the deal. Thanks for the time.
Thanks, Tom.
Thanks, Tom.
The next question is from Todd Fowler with KeyBanc Capital Markets.
Great, good morning. Just to kind of follow up on some of the questions about the specifics of the business. On CaseStack's website, they've got listed out, maybe like seven or eight retailers, and it says, like, retailer consolidation programs. Is CaseStack working directly with the large retailers to facilitate these movements? And are they part of the customer base, or is it working with the smaller CPG companies and then just feeding into the retailers? Can you help me understand how that relationship works with the large retailers?
They do work to develop a strong relationship with the retailers, but the ultimate client that's gonna supply the business is the CPG customers. And a lot of small, mid-sized, as I said, is their current customer base. But upon talking to and discussing with our, CPG clients, while they don't usually have a lot of LTL, by comparison to their overall transportation bill-
Mm-hmm.
They still have a significant amount that does go into some of the retailer distribution centers. So we see a lot of opportunity with our clients, the large CPGs, to also benefit from the CaseStack service.
So, Dave, is the growth of this business dependent on the large retail customers and how they're designing their supply chains and some of the penalties that they're putting in place? Or is it more just on, you know, gaining share and doing things with the smaller CPG companies that are already selling into the large retailers and working with them?
I think it's kind of both. I mean, it's kind of a recent phenomenon for the,
Mm-hmm
... the large retailers to being so aggressive on the inbound. And I think because they've discovered that, one of the discoveries I heard was that if a shipment was actually two days early, it would have a higher degree of likelihood of getting lost in the retailer distribution center than in fact if it was a day late. So they've just had a lot of discoveries, and so there's a lot more requirements on their clients, the CPG customers. So I think that there's just a tremendous amount of opportunity. The amount of penetration that CaseStack currently has with the number of CPG clients is there's an enormous amount of market share that's still available right now that's moving in traditional less-than-truckload.
Yes, I was gonna ask on that. I mean, if you had to define the market for this, I mean, do you have a ballpark for what you think the overall market opportunity is for CaseStack's business?
Yeah, it's pretty substantial. I think CaseStack's working with just under 500 customers today. You know, based on some feedback they've got from retailers, it's anywhere between 6,000 and 15,000 potential CPG that would be suited for this type of service.
Right. And Todd, if you think about the Hub footprint of our retail customers, the opportunity is to grow that if they don't have a program today.
Okay, helpful. Just two last quick ones. As far as the fourth quarter guidance on an earnings per share basis, I'm assuming... Well, let me ask, are there any changes based on, on CaseStack? And then, Dave, do you have any update right now? I know we're only, you know, a week and a half removed from when we last spoke, but just kind of thoughts on the general peak season and some of the things that you are anticipating for your fourth quarter guidance.
No changes on the updated guidance.
As far as November, actually, we're continuing to see a lot of capacity constraints in the intermodal market. Last week, in fact, was a record for Hub as far as overall volume. So it's been a very strong peak, a very... It certainly appears as though it's going to be a very lengthy peak as well. So nothing has really changed. It's all very positive from our perspective thus far in the fourth quarter.
Okay, good. And Terri, just to follow up on your comment on the no change to the guidance. Are there? You're saying CaseStack is earnings neutral in the fourth quarter, but will there be any, you know, acquisition costs or things like that? Or when you say there's no change, I just want to make sure I understand. It sounds like fundamentally things are on line, but when you report the quarter, will there be anything from CaseStack, I mean, you know, charges we need to add back or anything like that?
We will have one month of operations because we'll buy them at the beginning of December. In terms of the one-time cost that we'll have in the fourth quarter, we're estimating that to be between $700,000 and $800,000, primarily for legal, HSR, rep and warranty insurance.
Right.
Sure. Okay.
Is about $500,000.
Exactly.
Okay. Thanks for all the time this morning.
Thanks, Todd.
The next question is from Brian Ossenbeck with J.P. Morgan.
Hey, good morning. Thanks for taking my questions. Maybe if we can just back up and start from the beginning a little bit, the bit of the history of the deal, you know, how you came to know the company and the founder, especially since it sounds like there's some restricted stock being issued for the deal. So you can go into that as well, some of the terms for the earnouts and what might be associated and what key managers would be, you know, covered under that program.
Sure, Brian. This is Geoff DeMartino. So just, you know, at a high level, our M&A criteria are centered around the things Dave mentioned earlier, but diversification of our service line, looking to add the value-added services that are related- transportation offering are important to us. CaseStack, which has been on our radar screen for quite a while. We've made a few outreaches that were not successful, and you know, the timing kind of became right earlier this year or middle of this year.
So we've spent the last three or four months in diligence on the company and got to know the management team very well, including the founder, Dan Sanker. Very impressed with the management team. We think it's going to be a great cultural fit. We're buying this business to drive growth, and we think the management team is going to play an important role in that. And so we've put together a compensation package that's centered around retention.
There's no earn-out, but the top 16 or 17 managers of the company will participate in the incentive or the retention compensation pool.
Okay, thanks, Geoff. And so, Terri, it sounds like the guidance here will be excluding, excuse me, the accelerated intangibles and the restricted stock. Is that correct?
Correct. They're both non-cash. Mm-hmm.
Okay. Is that a change from Estenson? I thought that that was more of a everything was baked into the number, or maybe there's some some differences that I'm not remembering when you, when you think about comparing, comparing the two and how you're accounting for them, you know, post the acquisition.
CaseStack is non-asset-based, and, you know, Estenson is asset-based because of the purchase. So it's no change. No, it's just how we're going to report it in the future.
Okay, and then in the $0.40-$0.45 accretion, are you assuming you mentioned the EBITDA growth rate was about 31% over the last couple of years. Is that sort of the trajectory you think they'll be able to maintain for next year, and that's what's in the initial estimate for 2019?
We think that, operating income growth will range between 10% and 15% prospectively. That's our best guess.
Okay. Thank you. That helps. And then, you know, just lastly, on the whole concept of consolidation, it's, as you mentioned, it's gotten more traction recently in the last couple of years. I was just wondering if there's been any... You've done the diligence in on this deal. Has there been any change to some of these more aggressive retail programs like OTIF over the last year? Has the freight market got tight? Do you think that's really going to go away in the future or just kind of evolve as the freight markets go through different cycles?
It definitely is not going away. If anything, it's going to, I think, be broadened as far as the number of retailers that deploy that kind of strategy. It is an effort to better control inventory, and to make sure that inventory is on the store shelves. So no, I think if anything, we're going to see continued expansion. I would anticipate that over time, and again, I don't know what period this may be, but that, in fact, the requirements become more and more stringent. So, directly the opposite, I think that it's a great growth opportunity.
Okay. And then on the inbound side, excuse me, you mentioned leg one, could have some opportunities for intermodal. Is there anything from a dedicated perspective, is that similar sort of freight patterns you'd be able to go between some of the customers in these, in these facilities, or is that not the same network?
It could be. It's going to take more... We'll be working with CaseStack, and we'll examine those opportunities. It's a possibility. I'm not aware of any as of right now, but certainly, we would be looking to see if that's something that could bring a more cost-effective solution to the client.
Okay, great. Thanks for our time. Good luck.
Thanks, Brian.
The next question is from Bascome Majors with Susquehanna.
Yeah, you talked a little bit about the customer mix being pretty diverse with no one really driving a big chunk of that. What's the retailer mix look like as far as the distribution centers that you're bringing goods into? You know, is that overweight any one or two of the particular large retailers? Anything you can help us with on there would be helpful.
Yeah, it's about a little over 50% is with one retailer, but as Dave mentioned earlier, the retailer is not our customer. We work closely with them, but the consumer packaged goods is the customer.
Right. So the opportunity is to grow those programs with other retailers that HUB has relationships with and insert the small CPG, the mid-CPG accounts into those. So we'll look to expand that. We think it's tremendous opportunity. To Dave's point, these constraints on the retailers is not going to go away. They're going to continue to drive performance and shorten their supply chain.
Just to clarify, it sounds like the strategy here from CaseStack historically is very distribution center specific. Are we hearing that right, or just trying to understand kind of where it fits in?
Well, one of the advantages that they have is that they are able to go to every distribution center with a truckload of LTL on a daily or, you know, twice a week. And to build that volume, you know, when you're dealing with a retailer that may have 20+ distribution centers, it takes time to build that velocity, so that you're actually profitable with that. Otherwise, the transportation costs, if you're shipping a pallet, is would eat you alive.
So, yes, but you are correct. It is focused on marketing to each of the distribution centers, but it's as a package that when you're Mr., Mr. CPG customer, when you're going to ABC retailer, just give us all of your LTL, and we'll be able to funnel it directly into those distribution centers. So it's, it's a broader sell, but, it certainly, from an operational level, gets down, to the point that you're examining each and every retailer distribution center.
Okay, and Terri, with respect to the $22 million in trailing twelve months EBITDA, you know, how GAAP is that EBITDA number? Can you just walk us through any of the adjustments that were made to that from a GAAP number?
Oh, that's a, that's a GAAP number. I mean, the only adjustments were to pull out some business that's not coming with it, so, it's on a GAAP basis.
It hasn't been adjusted for management comp or amortization or anything like that?
No.
Okay, gotcha. And lastly, I mean, clearly, you've got some debt capacity left, even though this will exhaust a lot of your cash on hand. What's Hub's appetite for acquisitions in 2019 or something, something additional versus integrating what you've done over the last two years?
Well, as Geoff had said, we're continuing to look and examine. We, first and foremost, want to make sure that we integrate this properly and effectively, and don't want to get our attention diverted away from making sure that this is a successful acquisition. And we feel strongly it will be, and so we'll continue to be in the market, but I would suggest that we would like a little time to get this moving in a direction, and we'll then continue to be more active in the acquisition area.
All right. Congrats on the deal. Thanks for the time, guys.
Thanks, Bascome.
The next question is from Jason Seidl with Cowen and Company.
Thank you, operator, and, everyone, congratulations on the deal. A couple quick questions. One, I don't know if you went over this, but what's the overlap in the customer base on the acquisition?
You know, of course, the retailers that they are going to, that they're bringing in truckloads of LTL, are large clients of ours, but the actual customers themselves, the CPG customers, there's very, very little client overlap, as we deal primarily with some of the mega CPG companies, and theirs is more the middle. So, we see a lot of opportunities. There is a little bit of overlap with some of our logistics clients.
Right.
But it's very, it's very small. It's very, very small.
Okay, that's good. And when you look at e-commerce as a whole, integrating this company now, what percentage of your overall book of business is going to be on the e-commerce side or will touch e-commerce?
Not really.
It's hard to define exactly what it is, because we do with some of our large retailers, of course, they're very active in e-commerce, and they don't necessarily break it out for us-
Right
... as far as that amount, so it's hard for us to really quantify that.
Okay, fair enough. Who do you consider CaseStack top three competition out there in the marketplace?
The number two competitor in the marketplace is a company called Prime, which is owned by Roadrunner. Then there's some other smaller companies out there doing consolidation. In the Chicago area, there's a company called RJW. There's a company in New Jersey called Global Transportation, but it's pretty small, pretty quickly after that.
Okay, Prime as a percentage, are they close to the same size, or are they considerably smaller, number two player?
Our guess is they're around half, half the size or so.
Okay. Wow. Okay, fantastic. That's all I have, guys. Appreciate the time, as always.
Thanks.
Thanks, Jason.
As a reminder, ladies and gentlemen, for any questions, press star, then one. Our next question is from Matt Brooklier with Buckingham Research.
Hey, thanks. Good morning and congrats. Terri, are you able to talk to what CaseStack net revenue margin looks like that's about what you guys are doing now? Is it above? Is it below? Just trying to get kind of a feel for the financials on CaseStack.
Sure. Most recently, net revenue margin was about 34%, and, growth margin as a percentage of sales in both the consolidation services business, as well as the truck brokerage business, is in the low 20% range. So that will be a nice benefit for us, since, as you know, in the most recent quarter, our gross margin as a percentage of sales was 12.3%.
Okay, that's helpful. And then I guess what I'm trying to get a feel for also is how the contracts work. So you guys don't own any of the, right, the warehousing facilities. You're paying for that, right, through purchase transportation or purchase warehousing services. Wanted to get a feel also for how those contracts work. Is it one-year contracts that you're paying for the warehousing space? Is it multiyear contracts? And you know, the any of the drivers behind that, I think, would be helpful as well.
Sure. So on the warehousing side, there's a mix of providers that are providing the warehousing capacity to CaseStack. The contract types, there's a range. There are certain facilities where CaseStack has multiyear contracts that go out to, you know, 2023. There's a couple of contracts that have contractual minimums in order to secure space, multiple years. And for the rest—for some of the rest of the facilities, they're, you know, they expire in a year or less.
The customer contracts are generally a year and renew.
Okay.
On the transportation side, there, you know, there are no commitments on transportation.
Okay. Terri, you said that the contracts with the underlying customers, those are annual contracts?
Yes, and they generally renew. Yep. Mm-hmm.
Okay. Appreciate the time.
Thanks, Matt.
I would now like to turn the call back to Mr. Yeager for any final remarks.
Great. Well, again, thank you for joining us this morning on the conference call. As always, if there are any additional questions, please feel free to contact Terri, Don, Geoff, or I. Have a good day.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating, and you may now disconnect.