Good morning and welcome to the confidential announcement. My name is Brandon and I'll be your operator for today. I will now turn the call over to Philip Yeager, and you may begin, sir.
Thank you for joining us today. Time, we announced the purchase of Chop Tank Transport for $130,000,000 in cash, which represents another important step Through this acquisition, we are adding a scaled and culturally aligned brokerage that expands our reach, adds a new refrigerated capability brokerage firm with over $450,000,000 of annual revenue and a specialization in refrigerated freight. Over the last 20 years, the company has built a stellar reputation for service, working with many leading consumer products and retail shippers and has been recognized as a top logistics provider conference call by numerous industry sources including food logistics. Choptank will be combined with Hub's existing truck brokerage operation As the two businesses complement each other very well with limited customer and carrier overlap. The combined brokerage will exceed $1,000,000,000 in annual revenue And have an attractive mix of dry van, refrigerated and LTL offerings, as well as a balance across transactional and committed freight.
Refrigerated over the road transportation is a new capability for Hub that will offer substantial cross selling opportunities with our existing customer base. In addition, we look forward to adding Choptank's market expertise to our growing refrigerated intermodal fleet, which we will be growing to 1,000 containers in 2022. Shop Tank has developed an impressive set of technology tools, combining off the shelf software with enhancements that deliver value to customers, carriers and employees. We are very impressed with Choptank's technology platform and intend to leverage it within our own brokerage business. We have long had 5 key criteria for acquisitions: Diversify our service offerings, great cultural fit, a strong management team, solid operational process and discipline and immediate accretion to our earnings.
The CHOPTANK organization is very impressive, meets all of these criteria and we expect the transaction will be accretive to our earnings in 2022. We are pleased that the management team will continue to lead the business and have established a compensation program that will incentivize the team to deliver value and growth. Lastly, I would like to personally welcome the company's 400 employees to the Hub family. And with that, I'd like to turn the call over to the operator for any questions.
Thank you. We'll now begin the question and answer touchtone phone. And on the line from Evercore ISI, we have Johnnie Pappell. Please go ahead.
Thank you. Good morning, Phil. Two quick questions on the comment about accretive to EPS in 2022. So you've noted it's $450,000,000 of 2021 revenue. Time, what's the expectations for growth in 2022 full year integration?
And then can you give us any commentary on the margins that Choptank was generating and how we should think about the accretion level from an EPS perspective in the 1st full year?
Sure. And John, this is Jeff DeMartino. I can take that and Phil can add color if needed. Thanks, Jeff. Yes.
So 2021 revenue about $470,000,000 company historically has grown at about a 10% revenue growth rate organically. So we would expect that plus our cross selling to get us up to kind of a mid to high teens growth rate for next year. On an LTM basis, the company does around $14,000,000 of EBITDA. We do have around $5,000,000 of intangible amortization, as well as about $4,000,000 annually Of restricted stock expense. And so Phil referred to this in his remarks, but an important feature here is keeping the company's management team stage, we've put a package of incentives in place that will be kind of running through the P and L as well.
Dan, this is Phil. I would just highlight, I think the cross selling opportunity is significant. Also, as there's very customer overlap, which I think is great. We also think there's opportunities on making more efficient use of their really strong sales force from a pricing perspective, taking some of the bid opportunity pricing off of sales folks and automating more of that. So we think that's going to be a great opportunity.
And then obviously within the business, there's Some shared service synergies that we'll be able to attain as well. And I think, but all in all, we feel like there's opportunities for margin enhancement, but also significant revenue growth at the same time.
Great. And the 450 Yes, 450 refrigerated units you plan on now investing for next year. Is there any estimate to what the capital outlay would be associated with that?
Sure. For those specific units, that's around $30,000,000 or so of spend. So we would be growing from our current base of 450, Adding $550,000,000 and so that additional $550,000,000 is around $30,000,000 We are going through our 2022 budgeting process right now, including capital time, we'll probably have a little more say on that in our call next week. Great.
And as I
close Go ahead.
Go ahead.
No. I think by also allowing the Shop Tank sales force to sell into this fleet now. They haven't had assets in the past to sell. We're going to be able to actually balance the reefer fleet even more effectively, getting the boxes out to the West Coast loaded and bring the margins up even above what is some really great returns we're generating on those Free for Containers to begin with.
That's great. Thanks, Phil. And just finally, is it closed today or does it close at some point in the Q4?
Closed this morning.
Okay, perfect. Thanks, Jeff. Thanks, Phil.
Thanks, John. Appreciate it. Thank you.
From Stephens, we have Preston Long. Please go ahead.
Thanks. Good morning and congrats on the deal.
Thank you. Thank you.
So Jeff, just to follow-up on your comment about 10% organic growth historically, would you be willing to share what the organic growth or what it's expected to be in 2021? And then On the EBITDA contribution of $14,000,000 how much of that is D and A? I'm assuming that's a small number, but just wanted to clarify that.
Sure. Yes. Historically, they've kind of over the last 5 or 6 years been a 10% to 11% grower on the top line. So again, we can Expect that to continue, but also then benefit from the cross sell that we think is pretty substantial. With our most of our customers being retail and CPG, there's a lot of opportunity.
This is a new line of service, a new capability for us. So, as I think I said on the earlier question, mid to upper teens revenue growth rate for next year based on both organic and the cross sell wins that we're going to bring to bear. And then the EBITDA of around $14,000,000 that's on a trailing basis, Pretty minimal depreciation. This is a people business, but we do have a pretty about a $5,000,000 intangible amortization that will come from the transaction itself. Time
Okay. And when you say it's grown 10% to 11% historically on an organic basis, has there been an inorganic growth story Historically for the company as well?
No, it's they've not done an acquisition. I was just highlighting that kind of going forward. That's what we'd expect from the organically plus we're going to bring through our customer base.
And I think one thing
they have done really well from an organic perspective as well as open additional locations, Obviously, the headquarters out here in Eastern Maryland, but they've really done a nice job expanding the footprint and leveraging their time, we're going
to have a very good
time to go out and really get new offices opened and those are growing very quickly and doing very well. So we're excited about that.
Okay. Got it. And maybe lastly on the contingent compensation, any more color you can provide on exactly How that's structured and what some of the targets are in order for the incentives to pay out?
Sure. It's around $20,000,000 in total. It's a mix of our restricted stock, which is a 5 year vest, as well as bonus opportunities tied to the company's EBITDA. So It's a bonus not an earn out, but a large chunk of that is going to go to the ownership and he's committed to stay on and continue to lead the business. We're very excited to have him and the team engaged and incentivized to continue to grow.
And would you be willing to share what those EBITDA targets are?
I don't think we're going to share those, but they're going to be kind of consistent with what we just talked about for the growth for next year.
Okay, great. I'll leave it at that. I appreciate the time.
Thanks, Justin. Thank you.
From KeyBanc Capital, we have Todd Fowler. Please go ahead.
Hey, great. Good morning, Phil. Hey, Jeff.
Good morning.
Can you guys provide maybe
just a little bit more detail? It looks like the Choptank provides in addition to truck brokerage, some LTLs and intermodal. So of the and I think I've heard 2 different numbers, the 4 or the $470,000,000 of revenue, can you provide just kind of a rough idea of where the revenue is concentrated?
Sure. So the 450 figures trailing 12, we're expecting around 470 for the full year 2021. The vast majority is over the road and of that about 70% is refrigerated which is our key motivation here. But we do see some opportunities with both the LTL and the intermodal that they are providing and largely on the intermodal side, it's the ability to Really selling to our asset based fleet as well as opportunities we think for modal conversion both our customers and their customers moving reefer either over the road and Intermodially now having the opportunity to kind of optimize the best of both worlds.
Yes. So, Jeff, that makes a lot of sense, and that's actually I wanted to ask for a follow-up. So strategically, as we think about this, is the opportunity here that this is an end market that you don't have a lot of overlap, and so So temperature controlled is kind of a market that you don't have a big presence in, and then there's an opportunity to sell this or cross sell this against time, the existing franchise, is that the way to think about why this transaction makes sense?
Absolutely. And this is really consistent with our long term target that we talked about at the end of Q2, adding that new line of service that has a lot of cross sell potential with our customer base. And really it goes kind of both ways too. I mean there are over 1500 customers at Chop Tank that have not had the ability to offer kind of managed transportation services that's something we'll obviously bring to bear as well.
Okay, good. We can bring,
I think, a really good cost structure on some of the They do have interval freight. They do have LTL freight that we can bring, I think, a better purchasing and cost structure to Allow them to be more competitive, deepen their engagement with their clients. And so to Jeff's point, I really think it does Cut both ways that there's aggressive sales force is going to get a bunch of benefits and our team is going to have a new solution to really bring to market.
That makes sense. And then just my last one, were you doing a lot with Choptank already? Is there any overlap or revenue elimination that we're going to see as bulk of this or is this all kind of unique or differentiated revenue?
No, it's going to be all new revenue.
Okay, great. Thanks for the time and congratulations.
Thanks Tom. Thank you.
From UBS, we have Tom Wadewitz. Please go ahead.
Yes, good morning. And yes, I'd say congratulations on the deal. I think CHOP Tank is a really high call, the company seems like a great fit for you guys. Thank you. Wanted to get your sense, Phil, on time, how we would think about integration?
You mentioned you had some positive comments under technology. Their business and your brokerage business, is there integration that's done and with respect to technology or Kind of how does that work and how much, I guess, complexity is there to that? And And also wanted to ask you a follow-up a little bit on more on the cross sell.
Yes. So it's a We do plan to migrate to their system. We think that they've done a great job, but we think that we can bring additional resources time, an investment to take what is, I think, a really strong platform that drives a lot of efficiency and make it even better. So we're really excited about it. We needed to make an upgrade on our back end system anyways.
And we've actually I think some really neat customer facing tools that they're going to be able to leverage and we'll be leveraging more of their carrier solution and bringing that together into a really integrated platform. So it's exciting for us from a technological perspective, I think, And they have a great team that we plan to really grow and leverage. So it's exciting.
Do you think the way that the brokerage business is managed overall will change?
Yes. So I think we'll have some really strong platforms in place. Our legacy business is Majority dry van, obviously heavier contract. We have a strong LTL business and then this adds a really strong refrigerated capability. I think Where this allows us to pivot to is more of a much stronger inside sales organization, a little bit heavier of a spot mix and I think more of a traditional sort of brokerage model versus being so heavily contract rate.
I think we can still maintain that and grow that portion of the business very strongly over time. But this gives us more of That strong traditional brokerage model that will, I think have longer term growth.
Yes, it seems like it could juice up the growth potential in the business. Maybe one last one, I guess not So much on the cross sell, but on the impact of scale, I mean, this does give you gets you over $1,000,000,000 as you highlight. And I'm not sure if this makes you top 10 or top 15 broker, but it elevates your scale. How do you think about the impact of that? Is that significant in how you present to customers or what you can do in the market, just in terms of the scale impact?
Yes. No, for sure. I think that's a great point and something we plan to leverage. Our sales team is already making calls on that exact point and I think we traditionally haven't been seen as large of a player. I think we've done a lot of great work to improve our brokerage and get it to be in a great position.
So now that we've done this, I think the cross sell is going to be really phenomenal opportunity and we've got a model that works now across the board. So yes, I'm really excited about it actually and I think our Sales synergy targets are going to be very strong and I feel very good about our ability to achieve those.
From JPMorgan, we have Brian Ossenbeck. Please go ahead.
Yes, good morning. Thanks for taking the question. Congratulations on the deal. Have you quantified or could you share just some rough math in terms of what you're thinking about the cost synergies, quantify the revenue opportunity through The cross selling, it sounds like there is some scale benefits that you're just talking about, but also something on the back office purchase services. Do you think that that's going to be a material driver of this business or do you is this more characterized as growth?
Yes, this is much more of a growth driven story for us. So that new capability that we can cross sell And then operationally kind of optimize and reduce costs, both operational kind of best practices, Also modal conversions filling those empty backhaul legs. There are some back office really reducing Spend with 3rd parties and kind of leveraging fixed costs where we can, but much more of a commercial and cross driven story. On a full run rate basis, our estimate on the synergy number is around $5,000,000 to $6,000,000 annually Once we're kind of fully engaged and fully achieving some of the benefits across all.
Okay, thanks. That's helpful. And can you just give us a sense as to how this deal came together? I mean, I got my guess on it, but it always helps to hear The back story, how long you've known the company? What was kind of the trigger event to get this deal done here?
Yes.
So Jeff Turner and I had met a few years ago and built a relationship and really got to know one another. We felt like we'd always stayed in touch and felt like the timing was right for us to partner. And I think he did not run a process or anything and just engaged with Hub to find a great solution because he thinks And I agree with him that we're a great home for his company for the long term and that he wants to be a part of the growth that we're going to go after. Really was out of that, which is always easier.
Right. I guess the model you guys have followed, the last few of them as well. So no real surprise there. I guess the last one I want to ask about, and I'm sure we'll see this more over time, but can you just talk about the Some of the benefits and you mentioned filling up to empties, but I guess we haven't really seen too much of a refrigerated container business Growing with a now a platform on the brokerage side. So I know there's a lot going on within those different spheres and then now Maybe you can just elaborate a bit on why that is powerful, what type of gaps that fills Either in the market or from your perspective going to market.
Yes. So the refrigerated space is very disaggregated. Similar to this time, there's just a lot of carriers, but many even smaller carriers. And the as Jeff mentioned, the equipment is capital intensive. There is a and so you need to generate high profitability.
We found that there is a great time, our customers to work with asset and non asset based companies in the refrigerated space that they need solutions given how capital intensive this time, we think the food and fresh space is going to continue to grow as you just look at consumer trends. Time, and therefore the demand for transportation is going to be there. We're doing very well in the space right now, The smaller fleet that we have right now, but at very strong returns, but we think that by having this improved balance, It's going to allow us to invest at an even faster clip, generate a higher return, while servicing our customers and really filling a need that time, we think it's being underserved right now in the marketplace. So we're excited about it. And the Choptank team has developed some great relationships carriers, we also plan to participate with our own equipment, which we think will just be beneficial for our clients.
Then lastly, on this part, you talked about the capital spend, but clearly there's been supply chain challenges getting any sort of equipment On time. Is that the same for the reefer containers? Do you feel like you've got good line of sight to getting those On time, maybe you can just elaborate on the equipment side if that's a constraint to growth here.
No. We've actually time, we received all of our refrigerated containers for this year already. So very excited about that and those are being utilized right now. And time, we've placed our 2022 order and plan to receive those early next year. So feeling very confident in our ability to execute on that.
From Susquehanna, we have Beth Kompa Majors. Please go ahead.
Yes. A few questions.
On the trailing EBITDA, is that pro form a for the amortization of $5,000,000 you talked about? Or is that before that and the stock expense impact?
It's before both. So 'fifteen 'fourteen rather of EBITDA trailing, and then you'd have $4,000,000 of restricted stock and about $5,000,000 of intangibles. Okay.
Thank you. And the comment on accretion of the deal, is that after burdening for those items next year or would that be pro form a for amortization and adjusted EPS.
So that would be after those expenses, which
is how we've traditionally reported EPS? Yes. Thank you. And you talked about closing this morning. You got another deal done.
Can you talk about the pipeline looking forward? I mean is this one of a few balls in the air that has a high probability of landing? Or are We're kind of starting over and working on integrating this one, and then we'll talk about the next deal in 1 to 2 years. Just curious where that stands.
This is Phil. I'd highlight we have maintained a really strong pipeline and we feel very good about our ability
Great. Last piece, you talked about a 5 year commitment in some of the incentives you provided management. Does that include a commitment To keep headquarters in Maryland or will there be some integration of parts of that?
We don't plan to I think they've built a great time, we plan to maintain the headquarters for, Choptank here and continue to grow that footprint. They've actually invested in a new expansion of their current footprint here. Space that we think is going to continue to attract great talent. We also think there's great opportunity to expand, the other offices that they have across the country and think that that's a great opportunity as well. So I would tell you it'll be both.
And we anticipate With a partnership with Hub and ability to continue to attract really good talent and grow. So we're looking forward to that.
Okay. And actual last one here. I mean, you talked about this really Strengthening your overall value proposition for refrigerated shippers, can you talk about Where you sit versus the other 2 large domestic intermodal players today and your perception of your So that market and where this puts you if you get where you think you're going to go with new containers in this new truck offering later next year?
Yes, I think we've got so we're obviously investing in brand new equipment, and that is a huge advantage. One of our Competitors is doing the same. The industry from a legacy perspective has been somewhat starved for capital. So we think that there is This opportunity with investment in new equipment and a great service from our rail partners to be able to grow the Intermodal segment at a fast clip in refrigerated. So we're excited about it.
Our rail partners are committed to it. The service levels Despite what's going on really across the network, the service levels have been stronger than this time. And that obviously helps in reducing claims and all those important issues. But no, we feel like There is a huge amount of demand out there and that will continue and that with players like us focusing on the pace and putting capital to work that we and with our existing drayage network that we can perform very well.
Time, we have Jason Seidl. Please go ahead.
Thank you, operator. Hey, Phil. Hey, Jeff. Congratulations. Two quick questions.
Thank you. One, do these guys have any significant customer concentrations like somebody over like say 10%, 15% of their business. And then I have a follow-up after that.
No, I can take that. It's pretty It is not a very consolidated customer base. There's nobody over 10%. It's very it has a very long tail time, we think that's one of the things that we really liked was the lack of customer concentration. I don't know, Jeff, if you want to add anything to that.
No, I'd just say, yes, I think it's over 1500 customers they're actively working with and no significant concentration.
Okay, perfect. And after you guys sort of get them under your wing for
a little bit, I mean, do you
think you're going to continue to try to grow This refrigerated offering via further acquisitions, is this something we should look forward to, I guess, in the coming years?
I think this is a space where we're going to try to grow the refrigerated space organically. What we may add is solutions within the refrigerated space to really be able to control the full chain and bring our customers a deeper solution that point, ties them to Hub for the long term. So I doubt in the brokerage space, but in ancillary kind of cold chain service offerings, I could see us really trying to pursue that more aggressively.
Okay. That makes sense. Those are my 2. Appreciate the time as always.
Thanks, Jason. Thank you.
From Barclays, we have Brandon Oglenski. Please go ahead.
Hey, good morning, everyone. Thanks for taking my question. So it sounds like you guys are going to keep this a separate operation for a while. Is that correct or am I hearing that wrong? And then as a follow-up, I'll just ask them all now.
Your path to $6,000,000,000 by 2025, with this acquisition, what other verticals would you guys say you're subscale, but Would like to have a larger presence going forward. Appreciate it.
Sure. So I think we do plan to integrate the offerings, actually run this as a combined brokerage. We want to do that thoughtfully and methodically. It is a people business, but we found that Jeff And his team are very open and willing to adjust and make changes And vice versa, we're learning a lot as well. So I think there's opportunities to take best practices and bring it together.
We don't as much as You want to integrate, you want to make sure that what's great about the company is maintained as well. So we want to strike that appropriate balance. From a scale perspective, I don't think that there's an area that we're Necessarily subscale, I would say there's areas where we don't have offerings that we want to fill in. Obviously, intermodal, we have this point. And we utilize that very well.
I think in our transportation management segments, we do as well. But Final time, we're very interested in continuing to grow our offerings. We're very interested in other non asset, logistics segments, whether it's In the brokerage space, continuing to grow our offerings beyond just reefer driving and LTL, potentially adding some LTL scale might be kind of interesting. And then an area that we've continued to study and continue to look at is the international space, where I think that's something we want to make sure we do right and appropriately. But obviously given the upheaval in the global supply chain, it's something that I think our customers are looking to leaders like Hub to support in more aggressively.
So those are all areas of consideration to build out our platform. And But we are very focused on finding the right businesses with the right culture that help us fill that full suite of services, help us achieve that scale and continue to win. So Jeff, I don't know if that's if you would add anything to that.
Yes. No, I agree. I think brokerage is the one that we area that we're currently in that we thought could benefit from more scale. To Phil's point, I think going forward, it's really going to be around adding those new And a new lines of service that have similar I think you saw this with CaseStack with Nonstop and now with Choptank is adding those new lines of service that have a lot of cross sell potential. Thank you.
And at this time, we have no further questions.
Great. Well, I just wanted to thank everybody for joining our call today. We're very excited about this acquisition and what it does for Hub Group and for our customers. But as always, Jeff and I are available
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.