mrtn20220630

mrtn20220630_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 June 30, 2022

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 81,018,865 as of July 25, 2022.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

	June 30,			December 31,
(In thousands, except share information)	2022			2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	68,374		$	56,995
Receivables:
Trade, net		138,391			99,003
Other		3,681			6,971
Prepaid expenses and other		27,437			23,980
Total current assets		237,883			186,949

Property and equipment:
Revenue equipment, buildings and land, office equipment and other		992,400			956,476
Accumulated depreciation		(310,645	)		(274,199	)
Net property and equipment		681,755			682,277
Other noncurrent assets		1,483			1,464
Total assets	$	921,121		$	870,690

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	48,463		$	20,150
Insurance and claims accruals		45,689			42,014
Accrued and other current liabilities		36,565			31,395
Total current liabilities		130,717			93,559
Deferred income taxes		129,972			125,163
Noncurrent operating lease liabilities		275			291
Total liabilities		260,964			219,013

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; 81,014,564 shares at June 30, 2022, and 83,034,404 shares at December 31, 2021, issued and outstanding		810			830
Additional paid-in capital		44,867			85,718
Retained earnings		614,480			565,129
Total stockholders’ equity		660,157			651,677
Total liabilities and stockholders’ equity	$	921,121		$	870,690

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
(In thousands, except per share information)	2022			2021			2022			2021

Operating revenue	$	329,565		$	232,442		$	616,846		$	455,488

Operating expenses (income):
Salaries, wages and benefits		96,460			75,296			185,809			148,294
Purchased transportation		67,480			45,003			124,790			85,768
Fuel and fuel taxes		61,337			32,007			105,705			60,944
Supplies and maintenance		13,352			11,167			25,665			22,182
Depreciation		26,865			25,540			53,008			51,227
Operating taxes and licenses		2,663			2,718			5,303			5,430
Insurance and claims		13,443			9,391			26,147			20,837
Communications and utilities		2,239			2,056			4,504			4,139
Gain on disposition of revenue equipment		(4,812	)		(5,339	)		(9,352	)		(7,323	)
Other		9,601			6,085			18,472			11,474

Total operating expenses		288,628			203,924			540,051			402,972

Operating income		40,937			28,518			76,795			52,516

Other		(36	)		(9	)		(43	)		(19	)

Income before income taxes		40,973			28,527			76,838			52,535

Income taxes expense		9,312			7,109			17,644			13,111

Net income	$	31,661		$	21,418		$	59,194		$	39,424

Basic earnings per common share	$	0.39		$	0.26		$	0.72		$	0.48

Diluted earnings per common share	$	0.39		$	0.26		$	0.72		$	0.47

Dividends declared per common share	$	0.06		$	0.04		$	0.12		$	0.08

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

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, 2020		82,705	$	827	$	85,070		$	534,436		$	620,333
Net income		-		-		-			18,006			18,006
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		70		1		160			-			161
Employee taxes paid in exchange for shares withheld		-		-		(547	)		-			(547	)
Share-based payment arrangement compensation expense		-		-		336			-			336
Dividends on common stock		-		-		-			(3,311	)		(3,311	)
Balance at March 31, 2021		82,775		828		85,019			549,131			634,978
Net income		-		-		-			21,418			21,418
Issuance of common stock from share-based payment arrangement exercises, deferred compensation plan distributions and vesting of performance unit awards		106		1		335			-			336
Employee taxes paid in exchange for shares withheld		-		-		(706	)		-			(706	)
Share-based payment arrangement compensation expense		-		-		930			-			930
Dividends on common stock		-		-		-			(3,315	)		(3,315	)
Balance at June 30, 2021		82,881	$	829	$	85,578		$	567,234		$	653,641

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months
	Ended June 30,
(In thousands)	2022			2021
Cash flows provided by operating activities:
Operations:
Net income	$	59,194		$	39,424
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		53,008			51,227
Tires in service amortization		3,161			3,263
Gain on disposition of revenue equipment		(9,352	)		(7,323	)
Deferred income taxes		4,809			2,214
Share-based payment arrangement compensation expense		1,573			1,266
Changes in other current operating items:
Receivables		(37,619	)		(7,596	)
Prepaid expenses and other		(5,040	)		(3,425	)
Accounts payable		19,927			392
Insurance and claims accruals		3,675			1,843
Accrued and other current liabilities		5,334			2,080
Net cash provided by operating activities		98,670			83,365

Cash flows used for investing activities:
Revenue equipment additions		(54,202	)		(98,877	)
Proceeds from revenue equipment dispositions		23,854			38,995
Buildings and land, office equipment and other additions		(4,618	)		(1,520	)
Other		(38	)		(36	)
Net cash used for investing activities		(35,004	)		(61,438	)

Cash flows used for financing activities:
Repurchase and retirement of common stock		(41,753	)		-
Dividends on common stock		(9,843	)		(6,626	)
Issuance of common stock from share-based payment arrangement exercises, deferred compensation plan distributions and vesting of performance unit awards		919			497
Employee taxes paid in exchange for shares withheld		(1,610	)		(1,253	)
Net cash used for financing activities		(52,287	)		(7,382	)

Net change in cash and cash equivalents		11,379			14,545

Cash and cash equivalents:
Beginning of period		56,995			66,127
End of period	$	68,374		$	80,672

Supplemental non-cash disclosure:
Change in property and equipment not yet paid	$	9,765		$	10,585

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	9,045		$	8,319

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

MARTEN TRANSPORT, LTD.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2022

(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 2021 Annual Report on Form 10-K.

(2)	Earnings per Common Share

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

	Three Months				Six Months
	Ended June 30,				Ended June 30,
(In thousands, except per share amounts)	2022		2021		2022		2021
Numerator:
Net income	$	31,661	$	21,418	$	59,194	$	39,424
Denominator:
Basic earnings per common share - weighted-average shares		81,689		82,840		82,310		82,799
Effect of dilutive stock options		326		557		307		585
Diluted earnings per common share - weighted-average shares and assumed conversions		82,015		83,397		82,617		83,384

Basic earnings per common share	$	0.39	$	0.26	$	0.72	$	0.48
Diluted earnings per common share	$	0.39	$	0.26	$	0.72	$	0.47

Options totaling 486,000 and 495,500 equivalent shares for the three-month and six-month periods ended June 30, 2022, respectively, and 322,150 equivalent shares for each of the three-month and six-month periods ended June 30, 2021, 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 66,912 and 109,371 equivalent shares for the three-month and six-month periods ended June 30, 2021, respectively, 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. There were no such equivalent shares for each of the three-month and six-month periods ended June 30, 2022.

(3)	Long-Term Debt

We maintain a credit agreement that provides for an unsecured committed credit facility with an aggregate principal amount of $30.0 million which matures in August 2023. At June 30, 2022, 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 $16.1 million and remaining borrowing availability of $13.9 million. At December 31, 2021, there was also no outstanding principal balance on the facility. As of that date, we also had outstanding standby letters of credit of $18.5 million on the facility. This facility bears interest at a variable rate based on the Term SOFR Rate or the lender’s Prime Rate, in each case plus/minus applicable margins. The interest rate for the facility that would apply to outstanding principal balances was 4.25% at June 30, 2022.

Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. Waivers allowing stock redemptions and dividends in excess of the 25% limitation in total amounts of up to $80 million in each of 2022 and 2021 were obtained from the lender in March 2022 and August 2021, respectively. This facility also contains 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 June 30, 2022 and December 31, 2021.

(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 $252,000 in the first six months of 2022 and $140,000 in the first six months of 2021 for fuel, tires and related services. In addition, we paid $790,000 in the first six months of 2022 and $1.0 million in the first six months of 2021 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 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 2021. As of June 30, 2022, 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. A quarterly cash dividend of $0.06 per share of common stock was paid in each of the first two quarters of 2022 which totaled $9.8 million. A quarterly cash dividend of $0.04 per share of common stock was paid in each of the first two quarters of 2021 which totaled $6.6 million.

(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 six months of 2022, 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 six months of 2022 and 2021 was $1.6 million and $1.3 million, respectively.

(8)	Termination of Deferred Compensation Plan

On May 5, 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 May 5, 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 $42.1 million and building construction obligations of $10.1 million through the remainder of 2022. We also have commitments to purchase new revenue equipment of $22.0 million in 2023 and $13.0 million in 2024. Operating lease obligation expenditures through 2024 total $521,000.

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. In the opinion of management, based upon present knowledge of the facts, it is remote that the ultimate outcome of any such legal actions will have a material adverse effect upon our long-term financial position or results of operations.

(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 $3.5 million and $2.2 million as of June 30, 2022 and December 31, 2021, respectively. We had no impairment losses on contract assets in the first six months of 2022 or in 2021. 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				Six Months
	Ended June 30,				Ended June 30,
(In thousands)	2022		2021		2022		2021
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	101,808	$	83,633	$	196,978	$	167,552
Truckload fuel surcharge revenue		25,164		12,308		42,784		23,304
Total Truckload revenue		126,972		95,941		239,762		190,856

Dedicated revenue, net of fuel surcharge revenue		84,389		67,227		162,810		134,129
Dedicated fuel surcharge revenue		25,966		12,894		44,305		24,229
Total Dedicated revenue		110,355		80,121		207,115		158,358

Intermodal revenue, net of fuel surcharge revenue		27,681		22,031		53,286		41,477
Intermodal fuel surcharge revenue		9,286		3,561		15,323		6,119
Total Intermodal revenue		36,967		25,592		68,609		47,596

Brokerage revenue		55,271		30,788		101,360		58,678
Total operating revenue	$	329,565	$	232,442	$	616,846	$	455,488

Operating income:
Truckload	$	16,088	$	13,197	$	31,659	$	24,612
Dedicated		14,039		10,617		24,684		19,553
Intermodal		4,097		1,850		9,133		3,311
Brokerage		6,713		2,854		11,319		5,040
Total operating income	$	40,937	$	28,518	$	76,795	$	52,516

Truckload segment depreciation expense was $13.5 million and $12.9 million, Dedicated segment depreciation expense was $11.2 million and $10.7 million, Intermodal segment depreciation expense was $1.9 million and $1.6 million, and Brokerage segment depreciation expense was $349,000 and $298,000 in the three-month periods ended June 30, 2022 and 2021, respectively.

Truckload segment depreciation expense was $26.4 million and $26.1 million, Dedicated segment depreciation expense was $22.3 million and $21.4 million, Intermodal segment depreciation expense was $3.6 million and $3.1 million, and Brokerage segment depreciation expense was $687,000 and $580,000 in the six-month periods ended June 30, 2022 and 2021, 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, 2021. 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 increased $161.4 million, or 35.4%, in the first six months of 2022 from the first six months of 2021. Our operating revenue, net of fuel surcharges, increased $112.6 million, or 28.0%, compared with the first six months of 2021. Truckload segment revenue, net of fuel surcharges, increased 17.6% from the first six months of 2021 primarily due to an increase in our average revenue per tractor, despite a slight reduction in our average number of tractors. Dedicated segment revenue, net of fuel surcharges, increased 21.4% from the first six months of 2021 primarily due to an increase in our average revenue per tractor. Intermodal segment revenue, net of fuel surcharges, increased 28.5% from the first six months of 2021 primarily due to an increase in revenue per load. Brokerage segment revenue increased 72.7% primarily due to increases in both the number of loads and in revenue per load in the first six months of 2022. Fuel surcharge revenue increased to $102.4 million in the first six months of 2022 from $53.7 million in the first six months of 2021, primarily due to higher fuel costs.

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 improved 46.2% to $76.8 million in the first six months of 2022 from $52.5 million in the first six months of 2021. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 87.6% in the first six months of 2022 from 88.5% in the first six months of 2021. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 85.1% in the first six months of 2022 from 86.9% in the first six months of 2021. Our net income improved 50.1% to $59.2 million, or $0.72 per diluted share, in the first six months of 2022 from $39.4 million, or $0.47 per diluted share, in the first six months of 2021.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At June 30, 2022, we had $68.4 million of cash and cash equivalents, $660.2 million in stockholders’ equity and no long-term debt outstanding. In the first six months of 2022, net cash flows provided by operating activities of $98.7 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $30.3 million, to repurchase and retire 2.3 million shares of our common stock for $41.8 million, to pay cash dividends of $9.8 million, and to construct and upgrade regional operating facilities in the amount of $3.8 million, resulting in an $11.4 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $128 million for the remainder of 2022. A quarterly cash dividend of $0.06 per share of common stock was paid in each of the first two quarters of 2022 which totaled $9.8 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				Six Months
	Ended June 30,				Ended June 30,
	2022		2021		2022		2021
Truckload Segment:
Revenue (in thousands)	$	126,972	$	95,941	$	239,762	$	190,856
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	5,080	$	4,146	$	5,030	$	4,101
Average tractors⁽¹⁾		1,542		1,552		1,515		1,580
Average miles per trip		509		513		514		524
Total miles (in thousands)		36,752		37,285		72,124		75,568

Dedicated Segment:
Revenue (in thousands)	$	110,355	$	80,121	$	207,115	$	158,358
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	4,072	$	3,268	$	3,962	$	3,241
Average tractors⁽¹⁾		1,594		1,582		1,589		1,601
Average miles per trip		341		323		341		315
Total miles (in thousands)		34,134		32,255		66,887		64,254

Intermodal Segment:
Revenue (in thousands)	$	36,967	$	25,592	$	68,609	$	47,596
Loads		8,703		8,646		16,997		16,628
Average tractors		175		148		169		141

Brokerage Segment:
Revenue (in thousands)	$	55,271	$	30,788	$	101,360	$	58,678
Loads		25,322		14,341		45,006		28,916

(1)	Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 85 and 118 tractors as of June 30, 2022 and 2021, respectively.

Comparison of Three Months Ended June 30, 2022 to Three Months Ended June 30, 2021

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
	June 30,						June 30,		June 30,
(Dollars in thousands)	2022			2021			2022 vs. 2021		2022 vs. 2021
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	101,808		$	83,633		$	18,175		21.7	%
Truckload fuel surcharge revenue		25,164			12,308			12,856		104.5
Total Truckload revenue		126,972			95,941			31,031		32.3

Dedicated revenue, net of fuel surcharge revenue		84,389			67,227			17,162		25.5
Dedicated fuel surcharge revenue		25,966			12,894			13,072		101.4
Total Dedicated revenue		110,355			80,121			30,234		37.7

Intermodal revenue, net of fuel surcharge revenue		27,681			22,031			5,650		25.6
Intermodal fuel surcharge revenue		9,286			3,561			5,725		160.8
Total Intermodal revenue		36,967			25,592			11,375		44.4

Brokerage revenue		55,271			30,788			24,483		79.5

Total operating revenue	$	329,565		$	232,442		$	97,123		41.8	%

Operating income:
Truckload	$	16,088		$	13,197		$	2,891		21.9	%
Dedicated		14,039			10,617			3,422		32.2
Intermodal		4,097			1,850			2,247		121.5
Brokerage		6,713			2,854			3,859		135.2
Total operating income	$	40,937		$	28,518		$	12,419		43.5	%

Operating ratio:
Truckload		87.3	%		86.2	%
Dedicated		87.3			86.7
Intermodal		88.9			92.8
Brokerage		87.9			90.7
Consolidated operating ratio		87.6	%		87.7	%

Operating ratio, net of fuel surcharges:
Truckload		84.2	%		84.2	%
Dedicated		83.4			84.2
Intermodal		85.2			91.6
Brokerage		87.9			90.7
Consolidated operating ratio, net of fuel surcharges		84.8	%		86.0	%

Our operating revenue increased $97.1 million, or 41.8%, to $329.6 million in the 2022 period from $232.4 million in the 2021 period. Our operating revenue, net of fuel surcharges, increased $65.5 million, or 32.1%, to $269.1 million in the 2022 period from $203.7 million in the 2021 period. This increase in the 2022 period was due to a $24.5 million increase in Brokerage revenue, an $18.2 million increase in Truckload revenue, net of fuel surcharges, a $17.2 million increase in Dedicated revenue, net of fuel surcharges, and a $5.7 million increase in Intermodal revenue, net of fuel surcharges. Fuel surcharge revenue increased by $31.7 million to $60.4 million in the 2022 period from $28.8 million in the 2021 period primarily due to higher fuel costs.

Truckload segment revenue increased $31.0 million, or 32.3%, to $127.0 million in the 2022 period from $95.9 million in the 2021 period. Truckload segment revenue, net of fuel surcharges, increased $18.2 million, or 21.7%, to $101.8 million in the 2022 period from $83.6 million in the 2021 period. During the 2022 period, an increase in our average revenue per tractor was partially offset by a slight reduction in our average number of tractors. The higher operating ratio in the 2022 period was primarily due to increased insurance and claims expense and driver recruiting costs, partially offset by an increase in our average revenue per tractor due to increased rates with our customers.

Dedicated segment revenue increased $30.2 million, or 37.7%, to $110.4 million in the 2022 period from $80.1 million in the 2021 period. Dedicated segment revenue, net of fuel surcharges, increased 25.5% primarily due to an increase in our average revenue per tractor. The operating ratio was negatively impacted in the 2022 period by increases in company driver compensation expense, insurance and claims expense and driver recruiting costs, which were partially offset by an increase in our average revenue per tractor due to increased rates with our customers.

Intermodal segment revenue increased $11.4 million, or 44.4%, to $37.0 million in the 2022 period from $25.6 million in the 2021 period. Intermodal segment revenue, net of fuel surcharges, increased 25.6% from the 2021 period primarily due to an increase in revenue per load. The improvement in the operating ratio in the 2022 period was primarily due to increased rates with our customers and a decrease in the amounts payable to railroads as a percentage of our revenue.

Brokerage segment revenue increased $24.5 million, or 79.5%, to $55.3 million in the 2022 period from $30.8 million in the 2021 period primarily due to an increase in the number of loads. The improvement in the operating ratio in the 2022 period was primarily due to increased rates with our customers and a decrease in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

	Dollar Change			Percentage Change			Percentage of Operating Revenue
	Three Months Ended June 30,			Three Months Ended June 30,			Three Months Ended June 30,
(Dollars in thousands)	2022 vs. 2021			2022 vs. 2021			2022			2021

Operating revenue	$	97,123			41.8	%		100.0	%		100.0	%
Operating expenses (income):
Salaries, wages and benefits		21,164			28.1			29.3			32.4
Purchased transportation		22,477			49.9			20.5			19.4
Fuel and fuel taxes		29,330			91.6			18.6			13.8
Supplies and maintenance		2,185			19.6			4.1			4.8
Depreciation		1,325			5.2			8.2			11.0
Operating taxes and licenses		(55	)		(2.0	)		0.8			1.2
Insurance and claims		4,052			43.1			4.1			4.0
Communications and utilities		183			8.9			0.7			0.9
Gain on disposition of revenue equipment		527			9.9			(1.5	)		(2.3	)
Other		3,516			57.8			2.9			2.6
Total operating expenses		84,704			41.5			87.6

SEC Form 10-Q filed by Marten Transport Ltd.