Marten Transport, Ltd. — 2019 Q1 Form 10-Q Summary
Business Context and Reporting Period
Marten Transport is a temperature-sensitive and truck-based transportation provider operating across Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico platforms. The filing covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The company filed the Form 10-Q on May 9, 2019.
Financial Performance and Position
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Operating revenue | $199.0 million | $187.0 million | 6.5% |
| Operating income | $17.7 million | $13.6 million | 30.4% |
| Operating margin | 8.9% | 7.3% | Improved 160 bps |
| Net income | $13.5 million | $10.3 million | 31.1% |
| Diluted EPS | $0.25 | $0.19 | 31.6% |
| Net margin | 6.8% | 5.5% | Improved 130 bps |
| Operating cash flow | $36.8 million | $23.2 million | 58.7% |
- Consolidated operating ratio improved to 91.1% from 92.7%; excluding fuel surcharges, it improved to 89.9% from 91.7%.
- Revenue growth was led by Dedicated revenue, which increased 18.2% to $57.7 million, and Brokerage revenue, which increased 30.0% to $26.6 million. Truckload revenue decreased 1.4% to $91.7 million, while Intermodal revenue decreased 6.8% to $23.0 million.
- Segment operating income increased for Truckload, Dedicated and Brokerage, but declined for Intermodal. Dedicated operating income increased 121.7% to $5.5 million; Intermodal operating income declined 19.6% to $2.4 million.
- Fuel and fuel taxes declined 4.7% to $27.7 million. Management reported net fuel expense of $7.0 million, down 24.9%, aided by fuel surcharge arrangements, improved fuel efficiency and operating changes.
- Cash and cash equivalents were $85.5 million at March 31, 2019, compared with $56.8 million at December 31, 2018. Total assets were $774.5 million and stockholders’ equity was $587.7 million.
- The company had no outstanding borrowings under its $30.0 million unsecured committed credit facility. Remaining borrowing availability was $15.4 million after $14.6 million of standby letters of credit supporting self-insurance claims.
- Net cash used in investing activities was $5.9 million, including $13.2 million of revenue equipment additions and $8.5 million of proceeds from equipment dispositions. Financing cash outflows were $2.1 million, including $1.6 million of dividends.
- A quarterly dividend of $0.03 per share was declared, compared with $0.025 per share in the prior-year quarter.
Material Changes Versus the Prior Comparable Period
- Revenue increased 6.5%, while operating income and net income grew approximately 30%, reflecting improved operating leverage and segment mix.
- Dedicated growth reflected fleet expansion and additional customer contracts. Brokerage growth reflected higher customer volume and rates.
- Truckload average tractors declined to 1,616 from 1,696, but average revenue excluding fuel surcharges per tractor per week increased to $3,859 from $3,679.
- Intermodal loads declined to 9,251 from 10,737, contributing to lower revenue and operating income.
- Net cash increased by $28.8 million in Q1 2019, compared with a $5.4 million decrease in Q1 2018, primarily because of stronger operating cash flow and lower net capital spending.
- The company adopted ASC 842, Leases, on January 1, 2019. The adoption added approximately $1.1 million of operating lease assets and liabilities and did not affect net earnings or cash flows.
Guidance, Outlook, Risks and Unusual Items
- Management estimated approximately $119 million of net capital expenditures for the remainder of 2019 and had committed to purchase approximately $91.1 million of new revenue equipment through year-end.
- Management stated that liquidity was adequate for at least the next twelve months and did not anticipate significant liquidity constraints in the foreseeable future.
- The company expects to continue quarterly cash dividends, subject to financial condition, cash requirements, corporate law requirements and board approval.
- Key operating risks include fuel price and availability, driver availability and compensation, freight demand, truck and rail capacity, severe weather, inflation, used-equipment values and customer concentration.
- The company self-insures portions of workers’ compensation, auto liability, cargo, property and other claims. It retains the first $1.0 million of each auto liability claim and the first $750,000 of each workers’ compensation claim. Insurance and claims accruals were $29.4 million at March 31, 2019.
- A 5% increase in diesel fuel prices would have increased Q1 fuel expense by approximately $1.4 million based on reported consumption. The company had no outstanding fuel hedges.
- Fuel surcharge programs do not fully offset fuel costs related to non-revenue miles or idling. Management also noted potential volatility in self-insured claims and gains or losses on used revenue equipment dispositions.
- The credit facility restricts annual stock redemptions and dividends to no more than 25% of prior-year net income and requires compliance with financial covenants. The company was in compliance at March 31, 2019.
- Management reported no material changes to the risk factors disclosed in the 2018 Form 10-K and stated that disclosure controls and procedures were effective.
Important Facts for Investors to Verify
- Verify whether Dedicated and Brokerage growth remains sufficient to offset weaker Intermodal volumes and a smaller Truckload tractor base.
- Assess the sustainability of the improved operating ratio, particularly in light of driver compensation, equipment costs and potential self-insured claims volatility.
- Monitor execution of the approximately $119 million remaining 2019 capital expenditure plan and the related $91.1 million equipment purchase commitment.
- Evaluate liquidity after planned equipment purchases, including the $15.4 million unused credit availability and the $14.6 million standby letters of credit.
- Review fuel surcharge pass-through effectiveness and exposure to fuel costs not covered by surcharges.
- Review customer concentration, related-party payments to Bauer Built, Inc., and the company’s 45% equity investment and transactions with MW Logistics, LLC.