Marten Transport, Ltd. 2019 Q3 Form 10-Q Summary
Business Context and Reporting Period
Marten Transport, Ltd. is a temperature-controlled and dry freight transportation and logistics company operating through Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico activities. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, compared with the corresponding 2018 periods. The filing was dated November 8, 2019.
Financial Performance and Position
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Operating revenue | $215.0 million | $199.6 million | $626.1 million | $583.6 million |
| Operating income | $20.0 million | $19.0 million | $57.7 million | $50.8 million |
| Net income | $16.6 million | $15.3 million | $45.3 million | $39.3 million |
| Diluted EPS | $0.30 | $0.28 | $0.82 | $0.71 |
| Operating margin | 9.3% | 9.5% | 9.2% | 8.7% |
| Net margin | 7.7% | 7.6% | 7.2% | 6.7% |
For the first nine months, operating revenue increased 7.3%, operating income increased 13.6%, and net income increased 15.4%. The consolidated operating ratio improved to 90.8% from 91.3%; excluding fuel surcharges, it improved to 89.5% from 89.9%.
- Segment revenue for 9M: Dedicated $195.1 million, Truckload $282.7 million, Intermodal $65.9 million and Brokerage $82.4 million.
- Segment operating income for 9M: Dedicated $23.1 million, Truckload $22.6 million, Brokerage $6.9 million and Intermodal $5.1 million.
- Cash flow: Operating cash flow was $119.6 million versus $112.1 million in the prior-year period. Investing cash flow was $(96.1) million, including $127.2 million of revenue equipment additions and $34.5 million of equipment disposition proceeds. Financing cash flow was $(39.8) million.
- Liquidity: Cash and cash equivalents were $40.5 million at September 30, 2019, compared with $56.8 million at December 31, 2018. Total current assets were $147.9 million and current liabilities were $84.9 million.
- Debt: No principal was outstanding under the $30.0 million unsecured revolving credit facility. The company had $15.7 million of standby letters of credit and $14.3 million of remaining borrowing availability.
- Capital structure: Stockholders’ equity was $582.9 million. Net property and equipment was $629.9 million.
- Dividends: The company paid $40.4 million during the first nine months, including a $0.65-per-share special dividend and regular quarterly dividends of $0.03 per share.
Material Changes Versus the Prior Comparable Period
- Dedicated revenue increased 18.5% for the nine-month period, primarily from fleet growth, additional contracts and higher average revenue per tractor. Dedicated operating income increased 73.7%.
- Brokerage revenue increased 33.7%, driven by higher volume and rates; operating income increased 73.6%.
- Intermodal revenue declined 13.4% because of lower load volume, while operating income declined 35.7% and its operating ratio worsened to 92.2% from 89.5%.
- Truckload revenue increased only 0.5% in total, although revenue excluding fuel surcharges rose 2.1%. Truckload operating income declined 11.6%, primarily reflecting higher salaries and wages as a percentage of revenue.
- Fuel surcharge revenue declined to $76.4 million from $78.8 million. Management noted that customer-contract changes shifted $12.8 million of line-haul revenue into fuel surcharge revenue in 2019, compared with $9.3 million in 2018.
- For the nine months, salaries, wages and benefits increased 8.2%, purchased transportation increased 10.8%, supplies and maintenance increased 11.1%, and depreciation increased 6.1%.
- 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 flow.
Guidance, Outlook, Risks and Unusual Items
- Management estimated approximately $44 million of net capital expenditures for the remainder of 2019, including committed revenue equipment purchases of $41.3 million through year-end and $1.6 million in 2020.
- Management stated that liquidity is adequate for at least the next twelve months and anticipated no significant liquidity constraints, based on expected cash flows, cash balances and borrowing availability.
- The company obtained a waiver permitting up to $65 million of stock redemptions and dividends in 2019 despite the credit facility’s normal 25% limitation based on prior-year net income. The company was in compliance with all credit covenants at September 30, 2019.
- Key operating risks include fuel-price volatility, driver availability and compensation costs, freight demand and capacity conditions, severe weather, seasonality, equipment prices, accident and insurance claims, customer concentration and used-equipment resale values.
- The company self-insures portions of workers’ compensation, auto liability, general liability, cargo, property damage and employee health claims. Insurance and claims accruals were $30.6 million at September 30, 2019. The company retains the first $1.0 million of each auto liability claim and the first $750,000 of each workers’ compensation claim.
- A 5% increase in the average diesel fuel cost would have increased first-nine-month fuel expense by approximately $4.4 million. The company had no fuel-hedging instruments outstanding.
- Purchase obligations and operating lease obligations totaled approximately $44.2 million, including $42.9 million of revenue equipment commitments. Management stated that other legal actions were not expected to have a material adverse effect, although ultimate outcomes could differ from estimates.
- The filing reported no material changes to the risk factors previously disclosed in the 2018 Form 10-K. Disclosure controls and procedures were deemed effective.
Important Facts for Investors to Verify
- Whether Dedicated and Brokerage growth can offset continued weakness in Truckload margins and Intermodal volumes.
- The timing and cost of the remaining 2019 equipment purchases and the effect of higher fleet investment on depreciation and cash generation.
- The sustainability of the unusually large 2019 dividend, the credit-facility waiver and future capital allocation, including the $34 million remaining share-repurchase authorization.
- Changes in self-insured claims, accident severity and insurance accruals, including the $15.7 million of standby letters of credit.
- Customer concentration, driver availability, fuel-price recovery through surcharges and the impact of winter seasonality.
- The filing text does not provide company-wide full-year revenue or earnings guidance beyond the stated capital-expenditure estimate and liquidity commentary.