Marten Transport, Ltd. — Form 10-Q Summary
Business Context and Reporting Period
Marten Transport, Ltd. is a multifaceted transportation provider operating Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico platforms. The filing covers the quarter and six months ended June 30, 2019, compared with the corresponding 2018 periods. The company transports refrigerated and dry freight across the United States and into and out of Mexico and Canada.
Key Financial Metrics
| Metric | Three Months 2019 | Three Months 2018 | Six Months 2019 | Six Months 2018 |
|---|---|---|---|---|
| Operating revenue | $212.1 million | $197.0 million | $411.1 million | $384.0 million |
| Operating income | $19.9 million | $18.2 million | $37.7 million | $31.8 million |
| Net income | $15.2 million | $13.7 million | $28.7 million | $24.0 million |
| Diluted EPS | $0.28 | $0.25 | $0.52 | $0.44 |
| Operating ratio | 90.6% | 90.8% | 90.8% | 91.7% |
| Operating cash flow | Not separately provided | Not separately provided | $73.5 million | $67.4 million |
Six-month net income margin was approximately 7.0%, compared with 6.3% in 2018. Six-month operating margin was approximately 9.2%, compared with 8.3% in 2018. Cash and cash equivalents were $82.8 million at June 30, 2019, compared with $56.8 million at December 31, 2018. Stockholders’ equity was $602.4 million, and the company had no outstanding long-term debt.
The company generated $73.5 million of operating cash flow, used $44.2 million in investing activities and $3.3 million in financing activities, producing a $26.0 million increase in cash during the first six months. Capital expenditures, net of equipment-sale proceeds, were $41.9 million for revenue equipment and $1.4 million for regional facility upgrades.
The amended unsecured credit facility has a $30.0 million commitment and expires in August 2023. There was no outstanding principal at June 30, 2019; $15.3 million of standby letters of credit were outstanding and $14.7 million of borrowing availability remained. The company was in compliance with all covenants.
Material Changes Versus the Prior Comparable Period
- Six-month revenue increased 7.1% to $411.1 million; revenue excluding fuel surcharges increased 8.3%.
- Six-month operating income increased 18.4% to $37.7 million, while the operating ratio improved to 90.8% from 91.7%.
- Six-month net income increased 19.6% to $28.7 million, and diluted EPS increased to $0.52 from $0.44.
- Dedicated revenue increased 17.9% to $124.7 million, driven by fleet growth, additional contracts and higher average revenue per tractor. Dedicated operating income increased 63.7%.
- Brokerage revenue increased 35.5% to $55.1 million, supported by higher customer volume and rates. Brokerage operating income increased 79.3%.
- Truckload revenue was essentially flat, increasing 0.2% to $187.7 million; operating income increased only 0.6% and the operating ratio remained 91.7%.
- Intermodal revenue decreased 13.1% to $43.6 million because of lower load volume. Intermodal operating income declined 28.4%, and its operating ratio deteriorated to 91.0% from 89.0%.
- Fuel surcharge revenue declined to $50.3 million from $50.9 million. Net fuel expense decreased 16.1% to $14.0 million, aided by improved fuel efficiency, revenue rates and slightly lower fuel prices.
- In the second quarter, salaries, wages and benefits increased 8.5%, primarily from $5.3 million of additional company-driver compensation. Insurance and claims expense increased $921,000, primarily because of higher self-insured auto liability claims.
Guidance, Outlook, Risks and Unusual Items
- Management expects approximately $101 million of capital expenditures, net of proceeds from dispositions, during the remainder of 2019.
- Management believes liquidity is adequate for current and anticipated needs for at least the next twelve months and does not anticipate significant liquidity constraints.
- The company committed to purchase $81.7 million of new revenue equipment through the remainder of 2019. Total operating lease obligations were approximately $1.0 million.
- The company adopted ASC 842, Leases, on January 1, 2019. Adoption added approximately $1.1 million of operating lease assets and liabilities and did not affect net earnings or cash flows.
- The company self-insures portions of workers’ compensation, auto liability, general liability, cargo, property damage and health insurance claims. It retains the first $1.0 million of each auto liability claim and the first $750,000 of each workers’ compensation claim. Claims estimates may fluctuate materially.
- Fuel prices, driver availability and compensation, equipment costs, maintenance, insurance claims, freight demand, capacity, weather and economic conditions may affect results. A 5% increase in average diesel prices would have increased first-half fuel expense by approximately $2.9 million based on the company’s fuel consumption.
- Fuel surcharges recover a substantial portion, but not all, of fuel-cost increases; they do not fully offset fuel used for non-revenue miles or idling.
- The company declared quarterly dividends of $0.03 per share in each of the first two quarters of 2019, compared with $0.025 per share in 2018. No shares were repurchased during the first six months of 2019.
- Management reported no material changes to the risk factors disclosed in the 2018 Form 10-K. The filing states that ordinary-course legal actions are not expected to have a material adverse effect.
Investor Verification Items
- Verify whether Dedicated and Brokerage growth can continue to offset declining or slower Intermodal and Truckload performance.
- Monitor operating trends in driver compensation, insurance claims, maintenance and purchased transportation.
- Assess the cash funding impact of the $81.7 million equipment commitment and approximately $101 million of remaining 2019 capital expenditures.
- Review self-insurance reserves, claims development and the $15.3 million of standby letters of credit.
- Evaluate exposure to fuel-price changes, including the portion not recovered through customer surcharges.
- Review customer concentration and the collectibility of trade receivables; the filing identifies receivables as highly concentrated but does not provide customer-level concentration percentages.
- Confirm compliance with credit-facility covenants and the availability of the remaining $14.7 million borrowing capacity.