Marten Transport, Ltd. — Fiscal 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing was dated March 1, 2021; the source includes fourth-quarter results but reports primarily on the full fiscal year.
Business Context
Marten Transport is a temperature-sensitive and dry-freight transportation company operating through Truckload, Dedicated, Intermodal and Brokerage reporting segments, with additional cross-border activity through MRTN de Mexico. Approximately 58% of 2020 Truckload and Dedicated revenue was temperature-sensitive and 42% was dry freight. The company generated approximately 99% of revenue in the United States.
- 2020 operating revenue: $874.4 million.
- Fleet at year-end: 3,331 tractors, 5,395 trailers and 433 refrigerated containers.
- Employees: 4,162, plus 143 independent contractors.
- Largest customer: Walmart, representing approximately 24% of 2020 revenue.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenue | $874.4 million | $843.3 million | Up 3.7% |
| Operating income | $93.2 million | $76.5 million | Up 21.9% |
| Net income | $69.5 million | $61.1 million | Up 13.8% |
| Diluted earnings per share | $0.84 | $0.74 | Up $0.10 |
| Operating ratio | 89.3% | 90.9% | Improved 160 basis points |
| Cash flow from operations | $189.6 million | $156.5 million | Up $33.1 million |
| Cash and cash equivalents | $66.1 million | $31.5 million | Up $34.7 million |
| Long-term debt | None | None | No change |
| Stockholders’ equity | $620.3 million | $597.6 million | Up $22.7 million |
Net margin was approximately 7.9%, compared with 7.2% in 2019. Operating expenses declined to 89.3% of revenue from 90.9%. Fuel and fuel taxes decreased 19.1% to $98.1 million, while net fuel expense declined 19.9% to $24.1 million. Insurance and claims expense increased 24.2% to $47.5 million, and depreciation increased 8.2% to $102.9 million.
Segment Results
| Segment | 2020 Revenue | 2020 Operating Income | Change Versus 2019 |
|---|---|---|---|
| Truckload | $379.1 million | $39.6 million | Revenue up 0.3%; income up 33.6% |
| Dedicated | $309.8 million | $40.9 million | Revenue up 16.5%; income up 30.9% |
| Intermodal | $88.7 million | $5.7 million | Revenue down 1.8%; income down 13.3% |
| Brokerage | $96.7 million | $7.0 million | Revenue down 11.2%; income down 22.3% |
Revenue excluding fuel surcharges increased 6.8% to $790.6 million. Dedicated revenue excluding fuel surcharges increased 21.3%, driven primarily by fleet growth and additional contracts. Brokerage weakened because of lower load volume and revenue per load. Fuel surcharge revenue decreased to $83.8 million from $103.4 million due to lower fuel prices.
Cash Flow, Capital Allocation and Liquidity
- Net cash used in investing activities was $106.3 million, including $102.2 million of net revenue-equipment purchases and $5.4 million for facility acquisitions and upgrades.
- Cash dividends paid were $52.4 million, including a $0.50 per-share special dividend in December.
- The company repurchased 53,064 shares for $597,000 in the first quarter; approximately $33.4 million remained available under the repurchase authorization at year-end.
- The unsecured revolving credit facility has a $30.0 million commitment, no outstanding borrowings, $17.0 million of standby letters of credit and $13.0 million of remaining borrowing availability at year-end.
- Management estimated 2021 capital expenditures, net of dispositions, at approximately $137 million and stated that liquidity should be adequate for at least the next twelve months.
- Contractual commitments included $107.2 million of revenue-equipment purchases in 2021 and $974,000 of operating lease payments through 2025.
Material Changes and Unusual Items
- The COVID-19 pandemic caused substantial shifts in customer and freight-lane demand, although transportation demand continued overall. Management emphasized redeploying drivers and equipment to match changing demand.
- The company recorded a $1.7 million gain on disposition of a facility in 2020, in addition to an $8.7 million gain on disposition of revenue equipment.
- The effective income tax rate increased to 25.6% from 21.4%, including $1.1 million of additional expense related to discrete tax positions.
- Insurance and claims accruals increased to $39.6 million from $31.7 million, reflecting higher premiums and self-insured workers’ compensation, auto liability and physical-damage claims.
- A three-for-two stock split was completed on August 13, 2020; historical share and per-share data were adjusted retroactively.
- The company adopted the current expected credit-loss standard in 2020; the filing states that the adoption was not material.
- The deferred compensation plan was approved for termination effective May 5, 2021; the plan held 394,056 shares valued at $6.8 million at year-end.
Outlook, Risks and Contingencies
Management did not provide formal earnings or revenue guidance. Its stated outlook was that anticipated cash flows, cash balances, borrowing availability and other financing sources should support current and anticipated needs. The filing estimates approximately $137 million of 2021 capital expenditures.
- COVID-19 remains a material uncertainty because demand varies by customer, product and freight lane, and future economic effects are difficult to predict.
- Customer concentration is significant: the top 10 customers represented approximately 52% of revenue, the top five 43%, and the top two 35%.
- The company competes for qualified drivers and faces risks from driver shortages, compensation pressure, turnover and regulatory changes.
- Fuel-price volatility remains important. A 5% increase in average diesel prices would have increased 2020 fuel expense by approximately $4.8 million, based on reported consumption.
- The company self-insures portions of auto liability, workers’ compensation, cargo, property and other claims. It is responsible for the first $1.0 million of each auto liability claim and the first $750,000 of each workers’ compensation claim.
- Other risks include freight-rate competition, equipment pricing and availability, used-equipment resale values, railroad capacity, cybersecurity, adverse weather, regulatory compliance and environmental liabilities.
- Routine litigation is ongoing, primarily involving workers’ compensation, personal injury and property damage claims. Management considers the likelihood of a material adverse outcome remote.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned auto and workers’ compensation self-insurance reserves.
Investor Verification Checklist
- Verify the sustainability of Dedicated segment growth and whether its operating-ratio improvement persists as fleet size and depreciation increase.
- Assess customer concentration, particularly Walmart and Coca-Cola, and the renewal and pricing terms of major contracts.
- Monitor driver availability, compensation costs, utilization and the effect of regulatory drug-testing and hours-of-service requirements.
- Reconcile 2021 equipment commitments and projected capital expenditures with operating cash flow, dividends and remaining credit availability.
- Review the adequacy of insurance reserves and the potential volatility of self-insured claims.
- Track Brokerage and Intermodal volume, pricing and margins, which declined in 2020.
- Evaluate the impact of fuel prices, fuel-surcharge recovery and unrecovered fuel used for non-revenue miles and idling.
- Confirm future dividend and repurchase capacity under the revolving-credit-facility covenants and lender waivers.