Marten Transport, Ltd. — Form 10-Q Summary
Business context and reporting period
Marten Transport is a temperature-controlled and dry freight transportation 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, 2020, compared with the corresponding 2019 periods. The company filed the report on November 6, 2020. A three-for-two stock split effected on August 13, 2020, has been reflected retroactively in reported share and per-share data.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Operating revenue | $216.0 million | $215.0 million | $647.0 million | $626.1 million |
| Operating income | $24.4 million | $20.0 million | $67.7 million | $57.7 million |
| Operating margin | 11.3% | 9.3% | 10.5% | 9.2% |
| Net income | $18.0 million | $16.6 million | $49.9 million | $45.3 million |
| Net margin | 8.4% | 7.7% | 7.7% | 7.2% |
| Diluted EPS | $0.22 | $0.20 | $0.60 | $0.55 |
| Operating cash flow | Not separately provided | Not separately provided | $154.7 million | $122.0 million |
For the nine months, operating expenses were 89.5% of revenue versus 90.8% in 2019; excluding fuel surcharges, the operating ratio improved to 88.4% from 89.5%. Cash and cash equivalents were $88.3 million at September 30, 2020, versus $31.5 million at December 31, 2019. Stockholders’ equity was $644.7 million versus $597.6 million at year-end 2019. The company reported no outstanding long-term debt or revolver borrowings. Its $30.0 million unsecured credit facility had $17.0 million of standby letters of credit outstanding and $13.0 million of remaining borrowing availability.
Revenue and segment developments
- For the nine months, revenue increased 3.3%, while revenue excluding fuel surcharges increased 6.2%.
- Dedicated revenue rose 17.3% to $228.8 million, supported by fleet growth and more customer contracts; segment operating income increased 34.0% to $31.0 million.
- Truckload revenue was essentially flat at $283.0 million, but revenue excluding fuel surcharges increased 3.5%; segment operating income increased 25.8% to $28.4 million.
- Intermodal revenue was essentially flat at $66.0 million, while operating income declined 30.7% to $3.6 million.
- Brokerage revenue declined 15.9% to $69.3 million because of lower revenue per load and load volume; operating income declined 31.0% to $4.7 million.
- Fuel surcharge revenue declined to $63.5 million from $76.4 million because of lower fuel prices, while net fuel expense declined 20.7% to $17.6 million.
Cash flow, capital allocation and liquidity
Operating cash flow of $154.7 million was primarily used for $91.6 million of net revenue-equipment purchases, $7.7 million of dividends and $3.3 million of facility upgrades. Investing cash flow was negative $93.7 million, and financing cash flow was negative $4.1 million. The company expects approximately $26 million of net capital expenditures during the remainder of 2020 and believes liquidity is adequate for at least the next twelve months.
The company repurchased 53,064 shares for $597,000 in the first quarter and made no repurchases in the second or third quarters. Approximately $33.4 million remained available under the repurchase program at September 30, 2020. Quarterly dividends declared in 2020 totaled $7.7 million through the third quarter, compared with $40.4 million in the first nine months of 2019, which included a special dividend.
Material changes versus the prior comparable period
- Q3 revenue increased 0.5%, operating income increased 21.8%, and net income increased 8.8% year over year.
- Nine-month revenue increased 3.3%, operating income increased 17.3%, and net income increased 10.1%.
- Profitability benefited from lower fuel costs, cost-control measures and growth in Dedicated operations, partly offset by higher salaries, depreciation, insurance and claims costs.
- The effective tax rate increased to 26.4% for the nine months from 22.7%, reflecting a $1.1 million adjustment to certain discrete tax benefit reserves; the prior-year period included $1.4 million of additional tax benefits.
- The company sold its 45% interest in MW Logistics in October 2019 for approximately $1.3 million, eliminating related 2019 equity-method and transportation activity.
Guidance, outlook, risks and unusual items
Management did not provide formal revenue or earnings guidance. It expects approximately $26 million of net capital expenditures for the remainder of 2020 and currently expects to continue quarterly cash dividends. Management described the company as well positioned from a balance-sheet perspective during the COVID-19 pandemic, while noting that freight demand varies materially by customer, product, region and lane.
- COVID-19 may continue to cause significant demand and freight-lane volatility, requiring driver redeployment and equipment-utilization adjustments.
- Fuel prices and availability remain material risks. A 5% increase in average diesel prices would have increased nine-month 2020 fuel expense by approximately $3.6 million, based on reported consumption.
- The company self-insures portions of auto liability, workers’ compensation, cargo, property and health 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 $36.6 million at September 30, 2020.
- Contractual commitments totaled $84.6 million, including $83.4 million of revenue-equipment purchases and $1.1 million of operating lease obligations. A deferred-compensation obligation valued at $5.8 million was excluded from that table because timing is uncertain.
- The quarter included a $1.7 million gain on the sale of a Forest Park, Georgia facility. Nine-month gains on revenue-equipment dispositions totaled $5.9 million.
- The company reported no material changes to previously disclosed risk factors, no other material off-balance-sheet arrangements beyond the disclosed standby letters of credit, and effective disclosure controls as of September 30, 2020.
Investor verification items
- Verify whether Dedicated fleet and contract growth can offset weakness in Brokerage and Intermodal operations.
- Review fuel-price sensitivity, surcharge recovery and the effect of fuel prices on reported revenue and margins.
- Assess the adequacy of self-insurance reserves and the potential volatility of accident, workers’ compensation and health claims.
- Monitor $83.4 million of committed revenue-equipment purchases, future capital spending and used-equipment disposal values.
- Confirm compliance with credit-facility covenants and the dividend restriction limiting annual dividends and stock redemptions to 25% of prior-year net income absent a waiver.
- Evaluate the persistence of reported margins after the $1.7 million facility gain and other equipment-disposition gains.