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 and terminals 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 offices 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 and Chicago 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 June 30, 2018									Ended June 30, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Revenue	$	888,238	$	314,078	$	(23,223	)	$	1,179,093	$	704,344	$	242,998	$	(23,746	)	$	923,596
Transportation costs		788,087		278,039		(23,223	)		1,042,903		631,787		214,238		(23,746	)		822,279
Gross margin		100,151		36,039		-			136,190		72,557		28,760		-			101,317

Costs and expenses:
Salaries and benefits		53,839		4,253		-			58,092		41,569		3,469		-			45,038
Agent fees and commissions		11		21,958		-			21,969		14		17,024		-			17,038
General and administrative		17,768		2,448		-			20,216		18,331		1,783		-			20,114
Depreciation and amortization		3,719		241		-			3,960		2,249		300		-			2,549
Total costs and expenses		75,337		28,900		-			104,237		62,163		22,576		-			84,739

Operating income	$	24,814	$	7,139	$	-		$	31,953	$	10,395	$	6,184	$	-		$	16,578

Capital Expenditures	$	46,337	$	745	$	-		$	47,082	$	22,937	$	31	$	-		$	22,968

	Six Months									Six Months
	Ended June 30, 2018									Ended June 30, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Revenue	$	1,719,823	$	601,977	$	(46,736	)	$	2,275,064	$	1,380,824	$	484,832	$	(49,304	)	$	1,816,352
Transportation costs		1,529,297		533,522		(46,736	)		2,016,083		1,236,462		426,292		(49,304	)		1,613,450
Gross margin		190,526		68,455		-			258,981		144,362		58,540		-			202,902

Costs and expenses:
Salaries and benefits		105,909		8,190		-			114,099		81,164		7,053		-			88,217
Agent fees and commissions		25		41,086		-			41,111		31		35,000		-			35,031
General and administrative		36,170		4,550		-			40,720		36,810		4,128		-			40,938
Depreciation and amortization		7,478		487		-			7,965		4,357		604		-			4,961
Total costs and expenses		149,582		54,313		-			203,895		122,362		46,785		-			169,147

Operating income	$	40,944	$	14,142	$	-		$	55,086	$	22,000	$	11,755	$	-		$	33,755

Capital Expenditures	$	67,874	$	1,387	$	-		$	69,261	$	29,562	$	31	$	-		$	29,593

	As of June 30, 2018									As of December 31, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Total assets	$	1,513,130	$	227,425	$	(7,051	)	$	1,733,504	$	1,470,792	$	210,088	$	(9,939	)	$	1,670,941
Goodwill	$	318,717	$	29,389	$	-		$	348,106	$	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) for the quarter ended June 30:

	Three Months									Three Months
	Ended June 30, 2018									Ended June 30, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Intermodal	$	526,028	$	141,221	$	(6,559	)	$	660,690	$	451,420	$	112,089	$	(12,866	)	$	550,643
Truck brokerage		114,936		103,168		(84	)		218,020		104,289		82,869		(310	)		186,848
Logistics		173,421		69,689		(16,580	)		226,530		148,635		48,040		(10,570	)		186,105
Dedicated		73,853		-		-			73,853		-		-		-			-
Total revenue	$	888,238	$	314,078	$	(23,223	)	$	1,179,093	$	704,344	$	242,998	$	(23,746	)	$	923,596

The following tables summarize our revenue by segment and business line (in thousands) for the six months ended June 30:

	Six Months									Six Months
	Ended June 30, 2018									Ended June 30, 2017
					Inter-			Hub						Inter-			Hub
					Segment			Group						Segment			Group
	Hub		Mode		Elims			Total		Hub		Mode		Elims			Total
Intermodal	$	1,008,522	$	270,995	$	(17,829	)	$	1,261,688	$	875,843	$	234,269	$	(28,103	)	$	1,082,009
Truck brokerage		234,955		203,889		(442	)		438,402		210,473		161,031		(695	)		370,809
Logistics		342,098		127,093		(28,450	)		440,741		294,508		89,532		(20,506	)		363,534
Dedicated		134,248		-		(15	)		134,233		-		-		-			-
Total revenue	$	1,719,823	$	601,977	$	(46,736	)	$	2,275,064	$	1,380,824	$	484,832	$	(49,304	)	$	1,816,352