Marten Transport, Ltd. — Form 10-Q Summary
Business Context and Reporting Period
Marten Transport is a multifaceted transportation company operating through Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico activities. It provides refrigerated and dry transportation services across the United States and into and out of Mexico and Canada.
This report covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The filing was dated May 7, 2021. The interim financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $223.0 million | $218.6 million | Up 2.0% |
| Operating income | $24.0 million | $18.0 million | Up 33.1% |
| Income before taxes | $24.0 million | $18.1 million | Up 32.4% |
| Net income | $18.0 million | $13.7 million | Up 31.3% |
| Diluted earnings per share | $0.22 | $0.17 | Up $0.05 |
| Operating ratio | 89.2% | 91.8% | Improved 260 basis points |
| Operating ratio, net of fuel surcharges | 87.9% | 90.7% | Improved 280 basis points |
| Effective income tax rate | 25.0% | 24.3% | Increased 70 basis points |
| Dividends declared per share | $0.04 | $0.027 | Increased |
Net cash provided by operating activities was $43.6 million, compared with $43.5 million in the prior-year quarter. Investing cash outflow was $17.4 million, including $30.2 million of revenue equipment additions and $13.9 million of proceeds from equipment dispositions. Financing cash outflow was $3.7 million, primarily reflecting $3.3 million of dividends.
Cash and cash equivalents increased to $88.6 million at March 31, 2021, from $66.1 million at December 31, 2020. Total assets were $855.3 million and stockholders’ equity was $635.0 million. The company reported no outstanding long-term debt and no outstanding principal balance on its credit facility.
The company had a $30.0 million unsecured revolving credit facility maturing in August 2023. Outstanding standby letters of credit totaled $17.0 million, leaving $13.0 million of borrowing availability. The company was in compliance with all credit facility covenants.
Material Changes Versus the Prior Comparable Period
- Revenue increased $4.4 million, or 2.0%. Revenue excluding fuel surcharges increased 2.5%.
- Truckload revenue was essentially flat, while operating income increased 68.2% to $11.4 million. Higher average revenue per tractor and customer rate increases more than offset a lower average tractor count.
- Dedicated revenue increased 4.3% to $78.2 million, primarily due to fleet growth and more Dedicated contracts. Its operating ratio remained 88.6%.
- Intermodal revenue declined 7.1% to $22.0 million, primarily because of lower load volume. Its operating ratio improved to 93.4% from 94.5%.
- Brokerage revenue increased 12.5% to $27.9 million, primarily due to higher revenue per load. Its operating ratio improved to 92.2% from 94.3%.
- Operating expenses declined 0.8% despite higher revenue. Supplies and maintenance expense decreased $1.2 million, and insurance and claims expense decreased $838,000.
- Net fuel expense increased 5.3% to $6.6 million. Fuel surcharge revenue declined slightly to $24.9 million from $25.2 million.
- The company recorded a $2.0 million gain on revenue equipment dispositions, compared with $1.6 million in the prior-year quarter.
- The company did not repurchase shares in Q1 2021. Approximately $33.4 million, or approximately 2.6 million shares, remained available under the repurchase program at March 31, 2021.
Guidance, Outlook, Risks and Unusual Items
Management expects approximately $135 million of capital expenditures, net of proceeds from dispositions, for the remainder of 2021. The company also had committed revenue equipment purchases of $89.3 million through the remainder of 2021 and operating lease obligations totaling $826,000 through 2025.
Management believes existing cash, operating cash flows, borrowing availability and other financing sources are adequate to meet current and anticipated needs for at least the next twelve months, and does not anticipate significant liquidity constraints in the foreseeable future. The company currently expects to continue paying quarterly cash dividends, subject to financial condition, cash requirements, credit facility restrictions and board approval.
Management stated that the company overcame the effects of severe winter weather in February 2021. COVID-19 continues to create fluctuating customer demand by product, region and freight lane. Management emphasized driver redeployment, minimizing empty miles and using its diversified business model and operating technology to adjust to changing demand.
Key risks include driver availability, fuel price and availability, inflation, weather, freight demand, transportation capacity, customer rate levels, equipment costs and self-insured claims. A 5% increase in the average diesel fuel cost would have increased Q1 2021 fuel expense by approximately $1.4 million. Fuel surcharges recover a substantial portion, but not all, of fuel price increases, particularly fuel used during non-revenue miles and idling.
The company self-insures portions of workers’ compensation, auto liability, general liability, cargo, property damage and employee health claims. Management noted that claim frequency, severity and timing could materially affect results. The filing states that there were no material changes to previously disclosed risk factors.
Other notable items include the planned termination of the deferred compensation plan effective May 5, 2021, and an obligation at March 31, 2021 to issue 394,985 common shares under the plan, valued at $6.7 million. Management concluded that disclosure controls and procedures were effective as of March 31, 2021.
Important Facts for Investors to Verify
- Whether revenue growth and margin improvement continue after the favorable Q1 comparison and despite winter weather, fuel cost and labor pressures.
- The timing and funding of the remaining 2021 equipment commitments and approximately $135 million of planned capital expenditures.
- Changes in Truckload tractor utilization, Dedicated fleet growth, Intermodal load volumes and Brokerage carrier costs.
- Fuel prices, the effectiveness of fuel surcharge programs and the effect of non-revenue miles and idling on fuel recovery.
- Developments in self-insured claims, insurance costs and related standby letters of credit.
- Compliance with the revolving credit facility’s dividend and share repurchase restrictions and the availability of the $13.0 million borrowing capacity.
- The company’s ability to sustain dividends and potentially resume share repurchases while funding fleet investments.
- COVID-19-related changes in freight demand, employee safety requirements and transportation capacity.