mrtn20230930

mrtn20230930_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

☐ Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarter ended September 30, 2023

Commission File Number 0-15010

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

Delaware		39-1140809
(State of incorporation)		(I.R.S. employer identification no.)

129 Marten Street
Mondovi, Wisconsin 54755		715-926-4216
(Address of principal executive offices)		(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading symbol:	Name of each exchange on which registered:
COMMON STOCK, PAR VALUE	MRTN	THE NASDAQ STOCK MARKET LLC
$.01 PER SHARE		(NASDAQ GLOBAL SELECT MARKET)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Smaller reporting company ☐ Non-accelerated filer ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 81,308,968 as of October 25, 2023.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

	September 30,			December 31,
(In thousands, except share information)	2023			2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	68,067		$	80,600
Receivables:
Trade, net		117,820			120,702
Other		11,695			7,218
Prepaid expenses and other		27,004			27,320
Total current assets		224,586			235,840

Property and equipment:
Revenue equipment, buildings and land, office equipment and other		1,129,415			1,074,832
Accumulated depreciation		(358,414	)		(346,665	)
Net property and equipment		771,001			728,167
Other noncurrent assets		1,617			1,672
Total assets	$	997,204		$	965,679

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	42,042		$	37,299
Insurance and claims accruals		46,282			45,747
Accrued and other current liabilities		33,320			41,264
Total current liabilities		121,644			124,310
Deferred income taxes		125,887			137,041
Noncurrent operating lease liabilities		316			409
Total liabilities		247,847			261,760

Stockholders’ equity:
Preferred stock, $.01 par value per share; 2,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $.01 par value per share; 192,000,000 shares authorized; 81,308,968 shares at September 30, 2023, and 81,115,132 shares at December 31, 2022, issued and outstanding		813			811
Additional paid-in capital		49,280			47,188
Retained earnings		699,264			655,920
Total stockholders’ equity		749,357			703,919
Total liabilities and stockholders’ equity	$	997,204		$	965,679

The accompanying notes are an integral part of these consolidated condensed financial statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(In thousands, except per share information)	2023			2022			2023			2022

Operating revenue	$	279,538		$	324,448		$	863,233		$	941,294

Operating expenses (income):
Salaries, wages and benefits		92,620			99,773			287,468			285,582
Purchased transportation		49,673			64,403			152,075			189,193
Fuel and fuel taxes		48,695			57,299			137,706			163,004
Supplies and maintenance		17,896			14,855			51,291			40,520
Depreciation		29,017			28,381			87,974			81,389
Operating taxes and licenses		2,821			2,748			8,345			8,051
Insurance and claims		13,254			11,949			40,805			38,096
Communications and utilities		2,584			2,135			7,625			6,639
Gain on disposition of revenue equipment		(3,014	)		(1,070	)		(11,810	)		(10,422	)
Other		8,762			10,209			27,301			28,681

Total operating expenses		262,308			290,682			788,780			830,733

Operating income		17,230			33,766			74,453			110,561

Other		(1,017	)		(264	)		(2,938	)		(307	)

Income before income taxes		18,247			34,030			77,391			110,868

Income taxes expense		4,649			8,384			19,417			26,028

Net income	$	13,598		$	25,646		$	57,974		$	84,840

Basic earnings per common share	$	0.17		$	0.32		$	0.71		$	1.04

Diluted earnings per common share	$	0.17		$	0.32		$	0.71		$	1.03

Dividends declared per common share	$	0.06		$	0.06		$	0.18		$	0.18

The accompanying notes are an integral part of these consolidated condensed financial statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock				Additional Paid-In			Retained			Total Stock- holders’
(In thousands)	Shares		Amount		Capital			Earnings			Equity

Balance at December 31, 2022		81,115	$	811	$	47,188		$	655,920		$	703,919
Net income		-		-		-			22,502			22,502
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		119		1		535			-			536
Employee taxes paid in exchange for shares withheld		-		-		(926	)		-			(926	)
Share-based payment arrangement compensation expense		-		-		354			-			354
Dividends on common stock		-		-		-			(4,874	)		(4,874	)
Balance at March 31, 2023		81,234		812		47,151			673,548			721,511
Net income		-		-		-			21,874			21,874
Issuance of common stock from share-based payment arrangement exercises		67		1		507			-			508
Share-based payment arrangement compensation expense		-		-		1,005			-			1,005
Dividends on common stock		-		-		-			(4,878	)		(4,878	)
Balance at June 30, 2023		81,301		813		48,663			690,544			740,020
Net income		-		-		-			13,598			13,598
Issuance of common stock from share-based payment arrangement exercises		8		-		116			-			116
Share-based payment arrangement compensation expense		-		-		501			-			501
Dividends on common stock		-		-		-			(4,878	)		(4,878	)
Balance at September 30, 2023		81,309	$	813	$	49,280		$	699,264		$	749,357

The accompanying notes are an integral part of these consolidated condensed financial statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock						Additional Paid-In			Retained			Total Stock- holders’
(In thousands)	Shares			Amount			Capital			Earnings			Equity

Balance at December 31, 2021		83,034		$	830		$	85,718		$	565,129		$	651,677
Net income		-			-			-			27,533			27,533
Repurchase and retirement of common stock		(1,307	)		(13	)		(24,987	)		-			(25,000	)
Issuance of common stock from share-based payment arrangement exercises, deferred compensation plan distributions and vesting of performance unit awards		220			2			766			-			768
Employee taxes paid in exchange for shares withheld		-			-			(1,610	)		-			(1,610	)
Share-based payment arrangement compensation expense		-			-			369			-			369
Dividends on common stock		-			-			-			(4,975	)		(4,975	)
Balance at March 31, 2022		81,947			819			60,256			587,687			648,762
Net income		-			-			-			31,661			31,661
Repurchase and retirement of common stock		(963	)		(10	)		(16,743	)		-			(16,753	)
Issuance of common stock from share-based payment arrangement exercises		31			1			150			-			151
Share-based payment arrangement compensation expense		-			-			1,204			-			1,204
Dividends on common stock		-			-			-			(4,868	)		(4,868	)
Balance at June 30, 2022		81,015			810			44,867			614,480			660,157
Net income		-			-			-			25,646			25,646
Issuance of common stock from share-based payment arrangement exercises		82			1			844			-			845
Share-based payment arrangement compensation expense		-			-			655			-			655
Dividends on common stock		-			-			-			(4,866	)		(4,866	)
Balance at September 30, 2022		81,097		$	811		$	46,366		$	635,260		$	682,437

The accompanying notes are an integral part of these consolidated condensed financial statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months
	Ended September 30,
(In thousands)	2023			2022
Cash flows provided by operating activities:
Operations:
Net income	$	57,974		$	84,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		87,974			81,389
Tires in service amortization		5,415			4,861
Gain on disposition of revenue equipment		(11,810	)		(10,422	)
Deferred income taxes		(11,154	)		5,431
Share-based payment arrangement compensation expense		1,860			2,228
Changes in other current operating items:
Receivables		5,487			(24,657	)
Prepaid expenses and other		(2,402	)		(3,901	)
Accounts payable		1,239			14,364
Insurance and claims accruals		535			3,650
Accrued and other current liabilities		(8,785	)		5,438
Net cash provided by operating activities		126,333			163,221

Cash flows used for investing activities:
Revenue equipment additions		(167,985	)		(110,535	)
Proceeds from revenue equipment dispositions		51,125			28,527
Buildings and land, office equipment and other additions		(7,586	)		(10,370	)
Proceeds from buildings and land, office equipment and other dispositions		21			-
Other		(45	)		(38	)
Net cash used for investing activities		(124,470	)		(92,416	)

Cash flows used for financing activities:
Dividends on common stock		(14,630	)		(14,709	)
Repurchase and retirement of common stock		-			(41,753	)
Issuance of common stock from share-based payment arrangement exercises, deferred compensation plan distributions and vesting of performance unit awards		1,160			1,764
Employee taxes paid in exchange for shares withheld		(926	)		(1,610	)
Net cash used for financing activities		(14,396	)		(56,308	)

Net change in cash and cash equivalents		(12,533	)		14,497

Cash and cash equivalents:
Beginning of period		80,600			56,995
End of period	$	68,067		$	71,492

Supplemental non-cash disclosure:
Change in property and equipment not yet paid	$	(2,542	)	$	10,132
Operating lease assets and liabilities acquired	$	89		$	-

Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes	$	19,360		$	16,413
Interest	$	10		$	52

The accompanying notes are an integral part of these consolidated condensed financial statements.

MARTEN TRANSPORT, LTD.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2023

(Unaudited)

(1) Consolidated Condensed Financial Statements

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements, and therefore do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated condensed financial statements should be read with reference to the consolidated financial statements and notes to consolidated financial statements in our 2022 Annual Report on Form 10-K.

(2) Earnings per Common Share

Basic and diluted earnings per common share were computed as follows:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
(In thousands, except per share amounts)	2023		2022		2023		2022
Numerator:
Net income	$	13,598	$	25,646	$	57,974	$	84,840
Denominator:
Basic earnings per common share - weighted-average shares		81,306		81,061		81,260		81,889
Effect of dilutive stock options		148		286		154		266
Diluted earnings per common share - weighted-average shares and assumed conversions		81,454		81,347		81,414		82,155

Basic earnings per common share	$	0.17	$	0.32	$	0.71	$	1.04
Diluted earnings per common share	$	0.17	$	0.32	$	0.71	$	1.03

Options totaling 157,000 equivalent shares for each of the three-month and nine-month periods ended September 30, 2023, and 512,500 and 535,600 equivalent shares for the three-month and nine-month periods ended September 30, 2022, respectively, were outstanding but were not included in the calculation of diluted earnings per share because including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares, due to their exercise prices exceeding the average market price of the common shares, or because inclusion of average unrecognized compensation expense in the calculation would cause the options to be antidilutive.

Unvested performance unit awards totaling 106,582 equivalent shares for each of the three-month and nine-month periods ended September 30, 2023, and 16,590 equivalent shares for each of the three-month and nine-month periods ended September 30, 2022, were considered outstanding but were not included in the calculation of diluted earnings per share because inclusion of average unrecognized compensation expense in the calculation would cause the performance units to be antidilutive.

(3) Long-Term Debt

In August 2022, we entered into a credit agreement that provides for an unsecured committed credit facility with an aggregate principal amount of $30.0 million which matures in August 2027. The credit agreement amends, restates and continues in its entirety our previous credit agreement, as amended. At September 30, 2023, there was no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of $19.5 million and remaining borrowing availability of $10.5 million. At December 31, 2022, there was also no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit of $16.1 million on the facility. This facility bears interest at a variable rate based on the Term SOFR Rate plus applicable margins. The interest rate for the facility that would apply to outstanding principal balances was 8.5% at September 30, 2023.

Our credit agreement effective in August 2022 prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of $150 million. Our previous credit agreement prohibited us from making such payments in excess of 25% of our net income from the prior fiscal year. A waiver allowing stock redemptions and dividends in excess of the 25% limitation in total amounts of up to $80 million in 2022 was obtained from the lender in March 2022. The current and previous credit agreements also contain restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at September 30, 2023 and December 31, 2022.

(4) Related Party Transactions

We purchase fuel and tires and obtain related services from Bauer Built, Inc., or BBI. Jerry M. Bauer, the chairman of the board and chief executive officer of BBI, is one of our directors. We paid BBI $194,000 in the first nine months of 2023 and $377,000 in the first nine months of 2022 for fuel, tires and related services. In addition, we paid $1.6 million in the first nine months of 2023 and $1.4 million in the first nine months of 2022 to tire manufacturers for tires that were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.

(5) Share Repurchase Program

In August 2019, our Board of Directors approved and we announced an increase from current availability in our existing share repurchase program providing for the repurchase of up to $34.0 million, or approximately 1.8 million shares, of our common stock, which was increased by our Board of Directors to 2.7 million shares in August 2020 to reflect the three-for-two stock split effected in the form of a stock dividend on August 13, 2020. On May 3, 2022, our Board of Directors approved and we announced an additional increase from current availability in our existing share repurchase program providing for the repurchase of up to $50.0 million, or approximately 3.1 million shares of our common stock. The share repurchase program allows purchases on the open market or through private transactions in accordance with Rule 10b-18 of the Exchange Act. The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does not have an expiration date.

We repurchased and retired 1.3 million shares of common stock for $25.0 million in the first quarter of 2022, and 963,000 shares of common stock for $16.8 million in the second quarter of 2022. We did not repurchase any shares in the third or fourth quarters of 2022 or in the first nine months of 2023. As of September 30, 2023, future repurchases of up to $33.2 million, or approximately 2.2 million shares, were available in the share repurchase program.

(6) Dividends

In 2010, we announced that our Board of Directors approved a regular cash dividend program to our stockholders, subject to approval each quarter. Quarterly cash dividends of $0.06 per share of common stock were paid in each of the first three quarters of both 2023 and 2022, and totaled $14.6 million and $14.7 million in the first nine months of 2023 and 2022, respectively.

(7) Accounting for Share-based Payment Arrangement Compensation

We account for share-based payment arrangements in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 718, Compensation – Stock Compensation. During the first nine months of 2023, there were no significant changes to the structure of our stock-based award plans. Pre-tax compensation expense related to stock options and performance unit awards recorded in the first nine months of 2023 and 2022 was $1.9 million and $2.2 million, respectively.

(8) Termination of Deferred Compensation Plan

In May 2020, our Compensation Committee and Board of Directors approved the termination of our Deferred Compensation Plan. The plan was an unfunded, nonqualified deferred compensation plan designed to allow board elected officers and other select members of our management designated by our Compensation Committee to save for retirement on a tax-deferred basis. The termination was effective in May 2021. All shares of Company common stock within the plan were distributed by March 31, 2022.

(9) Fair Value of Financial Instruments

The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.

(10) Commitments and Contingencies

We are committed to new revenue equipment purchases of $63.2 million and building construction obligations of $292,000 for the remainder of 2023. Operating lease obligation expenditures through 2028 total $566,000.

We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review, and reserve currently for the estimated cost of the uninsured portion of pending claims.

We are also involved in other legal actions that arise in the ordinary course of business. A number of trucking companies, including us, have been subject to lawsuits alleging violations of various federal and state wage and hour laws. A number of these lawsuits have resulted in the payment of substantial settlements or damages by the defendants.

The outcome of all litigation is difficult to assess or quantify, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend litigation may also be significant. Not all claims are covered by our insurance, and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute. To the extent we experience claims that are uninsured, exceed our coverage limits or cause increases in future premiums, the resulting expense could have a materially adverse effect on our business and operating results. Based on our present knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of open claims and pending litigation, taking into account existing reserves, is not likely to have a materially adverse effect on our consolidated condensed financial statements, however, any future liability claims or adverse developments in existing claims could impact this analysis.

(11) Revenue and Business Segments

We account for our revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers. We combine our five current operating segments into four reporting segments (Truckload, Dedicated, Intermodal and Brokerage) for financial reporting purposes. These four reporting segments are also the appropriate categories for the disaggregation of our revenue under FASB ASC 606.

We have strategically transitioned from a refrigerated long-haul carrier to a multifaceted business offering a network of refrigerated and dry truck-based transportation capabilities across our five distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico.

Our Truckload segment provides a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada. Our agreements with customers are typically for one year.

Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

Generally, we are paid by the mile for our Truckload and Dedicated services. We also derive Truckload and Dedicated revenue from fuel surcharges, loading and unloading activities, equipment detention and other accessorial services. The main factors that affect our Truckload and Dedicated revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated, the number of miles we generate with our equipment and changes in fuel prices. We monitor our revenue production primarily through average Truckload and Dedicated revenue, net of fuel surcharges, per tractor per week. We also analyze our average Truckload and Dedicated revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our fuel surcharge revenue, our accessorial revenue and our other sources of operating revenue.

Our Intermodal segment transports our customers’ freight within the United States utilizing our refrigerated containers and our temperature-controlled trailers, each on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the United States Department of Transportation, or DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

Operating results of our MRTN de Mexico business which offers our customers door-to-door service between the United States and Mexico with our Mexican partner carriers is reported within our Truckload and Brokerage segments.

Our customer agreements are typically for one-year terms except for our Dedicated agreements which range from three to five years with annual rate reviews. Under FASB ASC 606, the contract date for each individual load within each of our four reporting segments is generally the date that each load is tendered to and accepted by us. For each load transported within each of our four reporting segments, the entire amount of revenue to be recognized is a single performance obligation and our agreements with our customers detail the per-mile charges for line haul and fuel surcharges, along with the rates for loading and unloading, stop offs and drops, equipment detention and other accessorial services, which is the transaction price. There are no discounts that would be a material right or consideration payable to a customer. We are required to recognize revenue and related expenses over time, from load pickup to delivery, for each load within each of our four reporting segments. We base our calculation of the amount of revenue to record in each period for individual loads picking up in one period and delivering in the following period using the number of hours estimated to be incurred within each period applied to each estimated transaction price. Contract assets for this estimated revenue which are classified within prepaid expenses and other within our consolidated condensed balance sheets were $2.7 million as of each of September 30, 2023 and December 31, 2022. We had no impairment losses on contract assets in the first nine months of 2023 or in 2022. We bill our customers for loads after delivery is complete with standard payment terms of 30 days.

We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense within our consolidated condensed statements of operations.

The following table sets forth for the periods indicated our operating revenue and operating income by segment. We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment.

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
(In thousands)	2023			2022		2023			2022
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	96,516		$	105,905	$	300,104		$	302,883
Truckload fuel surcharge revenue		17,711			23,471		51,887			66,255
Total Truckload revenue		114,227			129,376		351,991			369,138

Dedicated revenue, net of fuel surcharge revenue		82,963			86,178		257,231			248,988
Dedicated fuel surcharge revenue		18,834			24,039		56,000			68,344
Total Dedicated revenue		101,797			110,217		313,231			317,332

Intermodal revenue, net of fuel surcharge revenue		18,122			24,303		60,277			77,589
Intermodal fuel surcharge revenue		3,925			7,600		12,724			22,923
Total Intermodal revenue		22,047			31,903		73,001			100,512

Brokerage revenue		41,467			52,952		125,010			154,312
Total operating revenue	$	279,538		$	324,448	$	863,233		$	941,294

Operating income/(loss):
Truckload	$	2,738		$	14,319	$	22,348		$	45,978
Dedicated		11,286			13,005		39,143			37,689
Intermodal		(1,074	)		778		(452	)		9,911
Brokerage		4,280			5,664		13,414			16,983
Total operating income	$	17,230		$	33,766	$	74,453		$	110,561

Truckload segment depreciation expense was $15.3 million and $14.5 million, Dedicated segment depreciation expense was $11.5 million and $11.5 million, Intermodal segment depreciation expense was $1.7 million and $2.0 million, and Brokerage segment depreciation expense was $462,000 and $383,000 in the three-month periods ended September 30, 2023 and 2022, respectively.

Truckload segment depreciation expense was $45.9 million and $40.9 million, Dedicated segment depreciation expense was $35.2 million and $33.8 million, Intermodal segment depreciation expense was $5.5 million and $5.6 million, and Brokerage segment depreciation expense was $1.4 million and $1.1 million in the nine-month periods ended September 30, 2023 and 2022, respectively.

(12) Use of Estimates

We must make estimates and assumptions to prepare the consolidated condensed financial statements in conformity with U.S. generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities in the consolidated condensed financial statements and the reported amount of revenue and expenses during the reporting period. These estimates are primarily related to insurance and claims accruals and depreciation. Ultimate results could differ from these estimates.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part I, Item 1A for the year ended December 31, 2022. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

Our Dedicated segment provides customized transportation solutions tailored to meet each individual customer’s requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

In addition to the factors discussed above, our operating revenue is also affected by, among other things, the United States economy, inventory levels, the level of truck and rail capacity in the transportation market, a contracting driver market, severe weather conditions and specific customer demand.

Our operating revenue decreased $78.1 million, or 8.3%, in the first nine months of 2023 from the first nine months of 2022. Our operating revenue, net of fuel surcharges, decreased $41.2 million, or 5.3%, compared with the first nine months of 2022. Truckload segment revenue, net of fuel surcharges, decreased 0.9% from the first nine months of 2022, primarily due to a decrease in our average revenue per tractor, despite an increase in our fleet size. Dedicated segment revenue, net of fuel surcharges, increased 3.3% from the first nine months of 2022, primarily due to an increase in our fleet size. Intermodal segment revenue, net of fuel surcharges, decreased 22.3% from the first nine months of 2022, primarily due to decreases in both our number of loads and our revenue per load. Brokerage segment revenue decreased 19.0% from the first nine months of 2022, primarily due to decreases in both our revenue per load and our number of loads. Fuel surcharge revenue decreased to $120.6 million in the first nine months of 2023 from $157.5 million in the first nine months of 2022.

Our profitability is impacted by the variable costs of transporting freight for our customers, fixed costs, and expenses containing both fixed and variable components. The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition and subsequent depreciation of long-term assets, such as revenue equipment and operating terminals. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, along with any increases in fleet size. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices have significantly fluctuated over the past several years. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. To help further reduce fuel expense, we have installed and tightly manage the use of auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine, and also have improved the fuel usage in the temperature-control units on our trailers. For our Intermodal and Brokerage segments, our profitability is impacted by the percentage of revenue which is payable to the providers of the transportation services we arrange. This expense is included within purchased transportation in our consolidated condensed statements of operations.

Our operating income declined 32.7% to $74.5 million in the first nine months of 2023 from $110.6 million in the first nine months of 2022. Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 91.4% in the first nine months of 2023 and 88.3% in the first nine months of 2022. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, increased to 90.0% in the first nine months of 2023 from 85.9% in the first nine months of 2022. Our net income declined 31.7% to $58.0 million, or $0.71 per diluted share, in the first nine months of 2023 from $84.8 million, or $1.03 per diluted share, in the first nine months of 2022.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At September 30, 2023, we had $68.1 million of cash and cash equivalents, $749.4 million in stockholders’ equity and no long-term debt outstanding. In the first nine months of 2023, net cash flows provided by operating activities of $126.3 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $116.9 million, to pay cash dividends of $14.6 million, and to construct and upgrade regional operating facilities in the amount of $7.6 million, resulting in a $12.5 million decrease in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $76 million for the remainder of 2023. Quarterly cash dividends of $0.06 per share of common stock were paid in each of the first three quarters of 2023 which totaled $14.6 million. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

We continue to invest considerable time and capital resources to actively implement and promote long-term environmentally sustainable solutions that drive reductions in our fuel and electricity consumption and decrease our carbon footprint. These initiatives include (i) reducing idle time for our tractors by installing and tightly managing the use of auxiliary power units, which are powered by solar panels and provide climate control and electrical power for our drivers without idling the tractor engine, (ii) improving the energy efficiency of our newer, more aerodynamic and well-maintained tractor and trailer fleets by optimizing the equipment’s specifications, weight and tractor speed, equipping our tractors with automatic transmissions, converting the refrigeration units in our refrigerated trailers to the new, more-efficient CARB refrigeration units along with increasing the insulation in the trailer walls and installing trailer skirts, and using ultra-fuel efficient and wide-based tires, and (iii) upgrading all of our facilities to indoor and outdoor LED lighting along with converting all of our facilities to solar power. Additionally, we are an active participant in the United States Environmental Protection Agency, or EPA, SmartWay Transport Partnership, in which freight shippers, carriers, logistics companies and other voluntary stakeholders partner with the EPA to measure, benchmark and improve logistics operations to reduce their environmental footprint.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes discussions of operating revenue, net of fuel surcharge revenue; Truckload, Dedicated and Intermodal revenue, net of fuel surcharge revenue; operating expenses as a percentage of operating revenue, each net of fuel surcharge revenue; and net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads). We provide these additional disclosures because management believes these measures provide a more consistent basis for comparing results of operations from period to period. These financial measures in this report have not been determined in accordance with U.S. generally accepted accounting principles (GAAP). Pursuant to Item 10(e) of Regulation S-K, we have included the amounts necessary to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures of operating revenue, operating expenses divided by operating revenue, and fuel and fuel taxes.

Results of Operations

The following table sets forth for the periods indicated certain operating statistics regarding our revenue and operations:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2023		2022		2023		2022
Truckload Segment:
Revenue (in thousands)	$	114,227	$	129,376	$	351,991	$	369,138
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	4,285	$	4,889	$	4,442	$	4,980
Average tractors⁽¹⁾		1,714		1,648		1,732		1,560
Average miles per trip		529		508		515		512
Total miles (in thousands)		39,093		38,441		116,651		110,565

Dedicated Segment:
Revenue (in thousands)	$	101,797	$	110,217	$	313,231	$	317,332
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	3,900	$	4,006	$	3,949	$	3,977
Average tractors⁽¹⁾		1,619		1,637		1,670		1,605
Average miles per trip		339		337		335		340
Total miles (in thousands)		33,039		34,513		101,948		101,400

Intermodal Segment:
Revenue (in thousands)	$	22,047	$	31,903	$	73,001	$	100,512
Loads		6,327		7,610		19,871		24,607
Average tractors		154		182		168		173

Brokerage Segment:
Revenue (in thousands)	$	41,467	$	52,952	$	125,010	$	154,312
Loads		24,077		24,896		67,483		69,902

(1)	Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 99 and 90 tractors as of September 30, 2023 and 2022, respectively.

Comparison of Three Months Ended September 30, 2023 to Three Months Ended September 30, 2022

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

							Dollar			Percentage
							Change			Change
	Three Months						Three Months			Three Months
	Ended						Ended			Ended
	September 30,						September 30,			September 30,
(Dollars in thousands)	2023			2022			2023 vs. 2022			2023 vs. 2022
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	96,516		$	105,905		$	(9,389	)		(8.9	)%
Truckload fuel surcharge revenue		17,711			23,471			(5,760	)		(24.5	)
Total Truckload revenue		114,227			129,376			(15,149	)		(11.7	)

Dedicated revenue, net of fuel surcharge revenue		82,963			86,178			(3,215	)		(3.7	)
Dedicated fuel surcharge revenue		18,834			24,039			(5,205	)		(21.7	)
Total Dedicated revenue		101,797			110,217			(8,420	)		(7.6	)

Intermodal revenue, net of fuel surcharge revenue		18,122			24,303			(6,181	)		(25.4	)
Intermodal fuel surcharge revenue		3,925			7,600			(3,675	)		(48.4	)
Total Intermodal revenue		22,047			31,903			(9,856	)		(30.9	)

Brokerage revenue		41,467			52,952			(11,485	)		(21.7	)

Total operating revenue	$	279,538		$	324,448		$	(44,910	)		(13.8	)%

Operating income/(loss):
Truckload	$	2,738		$	14,319		$	(11,581	)		(80.9	)%
Dedicated		11,286			13,005			(1,719	)		(13.2	)
Intermodal		(1,074	)		778			(1,852	)		(238.0	)
Brokerage		4,280			5,664			(1,384	)		(24.4	)
Total operating income	$	17,230		$	33,766		$	(16,536	)		(49.0	)%

Operating ratio:
Truckload		97.6	%		88.9	%
Dedicated		88.9			88.2
Intermodal		104.9			97.6
Brokerage		89.7			89.3
Consolidated operating ratio

SEC Form 10-Q filed by Marten Transport Ltd.