NOTE 3.

Business Segments

We report two distinct business segments. The first segment is Mode, which includes the Mode Transportation, LLC (“Mode LLC”) business only. The second segment is Hub, which is all business other than Mode.

Hub offers comprehensive multimodal solutions including intermodal, truck brokerage, logistics and dedicated services. Our employees operate the freight through a network of operating centers located in the United States, Canada and Mexico. Each operating center is strategically located in a market with a significant concentration of shipping customers and one or more railheads. Hub has full time employees located throughout the United States, Canada and Mexico.

Mode LLC has Independent Business Owners (“IBOs”) who sell and operate the business throughout North America, as well as sales only agents. Mode LLC also has a corporate office in Dallas, TX, a temperature protected services division, Temstar, located in Oak Brook, IL and a corporate office in Memphis, TN.

Mode LLC markets and operates its freight transportation services, consisting of intermodal, truck brokerage and logistics, primarily through agents who enter into contractual arrangements with Mode LLC.

Our transportation services for both Hub and Mode segments can be broadly placed into the following categories:

Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for pickup and delivery. As part of our intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

Truck Brokerage (Highway Services). We are one of the largest truck brokers in the United States, providing customers with a highway service option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. As part of the truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss and damage on behalf of our customers.

Logistics and Other Services. Hub’s logistics business operates under the name of Unyson Logistics. Unyson Logistics is comprised of a network of logistics professionals dedicated to developing, implementing and operating customized logistics solutions for customers. Unyson Logistics offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Unyson Logistics operates throughout North America, providing services through its main operating location in St. Louis with additional support locations in the Boston, Chicago, Cleveland and Minneapolis metro areas. In addition, certain Mode LLC agents also provide logistics services. Our multi-modal transportation capabilities for both the Hub and Mode segments include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, railcar and international shipping.

Dedicated: Our dedicated service line, HGD, contracts with customers who wish to outsource a portion of their transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations.

The following is a summary of operating results and certain other financial data for our business segments (in thousands):

	Three Months									Three Months
	Ended March 31, 2018									Ended March 31, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Revenue	$	831,585	$	287,899	$	(23,513	)	$	1,095,971	$	676,480	$	241,834	$	(25,558	)	$	892,756
Transportation costs		741,211		255,482		(23,513	)		973,180		604,674		212,055		(25,558	)		791,171
Gross margin		90,374		32,417		-			122,791		71,806		29,779		-			101,585

Costs and expenses:
Salaries and benefits		52,070		3,937		-			56,007		39,596		3,583		-			43,179
Agent fees and commissions		13		19,129		-			19,142		17		17,976		-			17,993
General and administrative		18,402		2,102		-			20,504		18,479		2,345		-			20,824
Depreciation and amortization		3,760		245		-			4,005		2,109		303		-			2,412
Total costs and expenses		74,245		25,413		-			99,658		60,201		24,207		-			84,408

Operating income	$	16,129	$	7,004	$	-		$	23,133	$	11,605	$	5,572	$	-		$	17,177

Capital Expenditures	$	21,537	$	642	$	-		$	22,179	$	6,625	$	-	$	-		$	6,625

	As of March 31, 2018									As of December 31, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Total assets	$	1,444,239	$	205,070	$	(6,039	)	$	1,643,270	$	1,470,792	$	210,088	$	(9,939	)	$	1,670,941
Goodwill		318,772		29,389		-			348,161		319,272		29,389		-			348,661

On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. Segment revenues were not significantly impacted under ASC Topic 606. The tables below represent disaggregated revenue from contracts with customers.

The following tables summarize our revenue by segment and business line (in thousands):

	Three Months									Three Months
	Ended March 31, 2018									Ended March 31, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Intermodal	$	482,495	$	129,773	$	(11,270	)	$	600,998	$	424,423	$	122,181	$	(15,237	)	$	531,367
Truck brokerage		120,019		100,721		(358	)		220,382		106,185		78,161		(385	)		183,961
Logistics		168,676		57,405		(11,870	)		214,211		145,872		41,492		(9,936	)		177,428
Dedicated		60,395		-		(15	)		60,380		-		-		-			-
Total revenue	$	831,585	$	287,899	$	(23,513	)	$	1,095,971	$	676,480	$	241,834	$	(25,558	)	$	892,756