mrtn20210331

mrtn20210331_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 March 31, 2021

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 82,775,487 as of April 26, 2021.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

	March 31,			December 31,
(In thousands, except share information)	2021			2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	88,583		$	66,127
Receivables:
Trade, net		89,552			83,426
Other		3,489			4,202
Prepaid expenses and other		19,434			21,903
Total current assets		201,058			175,658

Property and equipment:
Revenue equipment, buildings and land, office equipment and other		934,405			930,123
Accumulated depreciation		(281,812	)		(275,950	)
Net property and equipment		652,593			654,173
Other noncurrent assets		1,698			1,805
Total assets	$	855,349		$	831,636

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,060		$	25,702
Insurance and claims accruals		41,712			39,595
Accrued and other current liabilities		24,079			24,497
Total current liabilities		97,851			89,794
Deferred income taxes		122,183			121,098
Noncurrent operating lease liabilities		337			411
Total liabilities		220,371			211,303

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; 82,774,936 shares at March 31, 2021, and 82,705,005 shares at December 31, 2020, issued and outstanding		828			827
Additional paid-in capital		85,019			85,070
Retained earnings		549,131			534,436
Total stockholders’ equity		634,978			620,333
Total liabilities and stockholders’ equity	$	855,349		$	831,636

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months
	Ended March 31,
(In thousands, except per share information)	2021			2020

Operating revenue	$	223,046		$	218,646

Operating expenses (income):
Salaries, wages and benefits		72,998			72,761
Purchased transportation		40,765			40,445
Fuel and fuel taxes		28,937			28,297
Supplies and maintenance		11,015			12,228
Depreciation		25,687			25,427
Operating taxes and licenses		2,712			2,639
Insurance and claims		11,446			12,284
Communications and utilities		2,083			1,985
Gain on disposition of revenue equipment		(1,984	)		(1,555	)
Other		5,389			6,103

Total operating expenses		199,048			200,614

Operating income		23,998			18,032

Other		(10	)		(97	)

Income before income taxes		24,008			18,129

Income taxes expense		6,002			4,411

Net income	$	18,006		$	13,718

Basic earnings per common share	$	0.22		$	0.17

Diluted earnings per common share	$	0.22		$	0.17

Dividends declared per common share	$	0.04		$	0.027

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, 2019		82,055		$	821		$	79,465		$	517,303		$	597,589
Net income		-			-			-			13,718			13,718
Repurchase and retirement of common stock		(53	)		(1	)		(596	)		-			(597	)
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		259			3			1,052			(1	)		1,054
Employee taxes paid in exchange for shares withheld		-			-			(437	)		-			(437	)
Share-based payment arrangement compensation expense		-			-			246			-			246
Dividends on common stock		-			-			-			(2,193	)		(2,193	)
Balance at March 31, 2020		82,261			823			79,730			528,827			609,380
Net income		-			-			-			55,782			55,782
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		444			4			3,735			-			3,739
Share-based payment arrangement compensation expense		-			-			1,605			-			1,605
Dividends on common stock		-			-			-			(50,173	)		(50,173	)
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

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months
	Ended March 31,
(In thousands)	2021			2020
Cash flows provided by operating activities:
Operations:
Net income	$	18,006		$	13,718
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		25,687			25,427
Tires in service amortization		1,642			1,706
Gain on disposition of revenue equipment		(1,984	)		(1,555	)
Deferred income taxes		1,085			1,768
Share-based payment arrangement compensation expense		336			246
Changes in other current operating items:
Receivables		(4,241	)		(782	)
Prepaid expenses and other		1,445			930
Accounts payable		677			617
Insurance and claims accruals		2,117			2,695
Accrued and other current liabilities		(1,200	)		(1,290	)
Net cash provided by operating activities		43,570			43,480

Cash flows used for investing activities:
Revenue equipment additions		(30,226	)		(44,086	)
Proceeds from revenue equipment dispositions		13,896			9,459
Buildings and land, office equipment and other additions		(1,050	)		(1,966	)
Other		(37	)		(39	)
Net cash used for investing activities		(17,417	)		(36,632	)

Cash flows used for financing activities:
Dividends on common stock		(3,311	)		(2,193	)
Repurchase and retirement of common stock		-			(597	)
Issuance of common stock from share-based payment arrangement exercises		161			1,054
Employee taxes paid in exchange for shares withheld		(547	)		(437	)
Net cash used for financing activities		(3,697	)		(2,173	)

Net change in cash and cash equivalents		22,456			4,675

Cash and cash equivalents:
Beginning of period		66,127			31,461
End of period	$	88,583		$	36,136

Supplemental non-cash disclosure:
Change in property and equipment not yet paid	$	5,505		$	11,107
Operating lease assets and liabilities acquired	$	-		$	88

Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes	$	1,350		$	-
Interest	$	-		$	-

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

MARTEN TRANSPORT, LTD.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2021

(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 2020 Annual Report on Form 10-K.

(2) Earnings per Common Share

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

	Three Months
	Ended March 31,
(In thousands, except per share amounts)	2021		2020
Numerator:
Net income	$	18,006	$	13,718
Denominator:
Basic earnings per common share - weighted-average shares		82,758		82,214
Effect of dilutive stock options		601		650
Diluted earnings per common share - weighted-average shares and assumed conversions		83,359		82,864

Basic earnings per common share	$	0.22	$	0.17
Diluted earnings per common share	$	0.22	$	0.17

Options totaling 193,750 and 294,450 equivalent shares for the three-month periods ended March 31, 2021 and 2020, 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 40,263 and 77,066 equivalent shares for the three-month periods ended March 31, 2021 and 2020, 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.

(3) Stock Split

On August 13, 2020, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% stock dividend. Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

(4) 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 March 31, 2021, 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 $17.0 million and remaining borrowing availability of $13.0 million. At December 31, 2020, there was also no outstanding principal balance on the facility. As of that date, we also had outstanding standby letters of credit of $17.0 million on the facility. This facility bears interest at a variable rate based on the London Interbank Offered 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 0.78% at March 31, 2021.

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. A waiver allowing stock redemptions and dividends in excess of the 25% limitation in a total amount of up to $60 million in 2020 was obtained from the lender in November 2020. 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 March 31, 2021 and December 31, 2020.

(5) 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 $76,000 in the first three months of 2021 and $90,000 in the first three months of 2020 for fuel, tires and related services. In addition, we paid $396,000 in the first three months of 2021 and $917,000 in the first three months of 2020 to tire manufacturers for tires that were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.

(6) 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. 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 53,064 shares of common stock for $597,000 in the first quarter of 2020. We did not repurchase any shares in the rest of 2020 or in the first quarter of 2021. As of March 31, 2021, future repurchases of up to $33.4 million, or approximately 2.6 million shares, were available in the share repurchase program.

(7) 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 $0.04 per share of common stock was declared in the first quarter of 2021 which totaled $3.3 million. A quarterly cash dividend of $0.027 per share of common stock was declared in the first quarter of 2020 which totaled $2.2 million.

Our ability to pay cash dividends is currently limited by restrictions contained in our revolving credit facility, which 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. A waiver allowing stock redemptions and dividends in excess of the 25% limitation in a total amount of up to $60 million in 2020 was obtained from the lender in November 2020.

(8) 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 three months of 2021, 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 three months of 2021 and 2020 was $336,000 and $246,000, respectively.

(9) 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 is 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 is effective May 5, 2021.

(10) 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.

(11) Commitments and Contingencies

We are committed to new revenue equipment purchases of $89.3 million through the remainder of 2021. Operating lease obligation expenditures through 2025 total $826,000.

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.

(12) 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.

The primary source of our operating revenue is provided by our Truckload segment through 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 temperature-controlled trailers and, beginning in September 2019, our refrigerated containers, 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 $2.4 million and $1.5 million as of March 31, 2021 and December 31, 2020, respectively. We had no impairment losses on contract assets in the first quarter of 2021 or in 2020. 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
	Ended March 31,
(In thousands)	2021		2020
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	83,919	$	83,857
Truckload fuel surcharge revenue		10,996		11,275
Total Truckload revenue		94,915		95,132

Dedicated revenue, net of fuel surcharge revenue		66,902		64,159
Dedicated fuel surcharge revenue		11,335		10,878
Total Dedicated revenue		78,237		75,037

Intermodal revenue, net of fuel surcharge revenue		19,446		20,594
Intermodal fuel surcharge revenue		2,558		3,086
Total Intermodal revenue		22,004		23,680

Brokerage revenue		27,890		24,797
Total operating revenue	$	223,046	$	218,646

Operating income:
Truckload	$	11,415	$	6,785
Dedicated		8,936		8,533
Intermodal		1,461		1,306
Brokerage		2,186		1,408
Total operating income	$	23,998	$	18,032

Truckload segment depreciation expense was $13.2 million and $13.8 million, Dedicated segment depreciation expense was $10.7 million and $9.9 million, Intermodal segment depreciation expense was $1.5 million and $1.4 million, and Brokerage segment depreciation expense was $282,000 and $362,000 in the three-month periods ended March 31, 2021 and 2020, respectively.

(13) 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, 2020. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

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 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 Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers and, beginning in September 2019, our refrigerated containers, 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 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 $4.4 million, or 2.0%, in the first three months of 2021 from the first three months of 2020. Our operating revenue, net of fuel surcharges, increased $4.8 million, or 2.5%, compared with the first three months of 2020. Truckload segment revenue, net of fuel surcharges, increased 0.1% from the first three months of 2020 due to an increase in our average revenue per tractor, substantially offset by a reduction in our average number of tractors. Dedicated segment revenue, net of fuel surcharges, increased 4.3% from the first three months of 2020 primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. Intermodal segment revenue, net of fuel surcharges, decreased 5.6% primarily due to decreased load volume. Brokerage segment revenue increased 12.5% primarily due to an increase in revenue per load in the first three months of 2021. Fuel surcharge revenue decreased slightly to $24.9 million in the first three months of 2021 from $25.2 million in the first three months of 2020.

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 33.1% from $18.0 million in the first three months of 2020 to $24.0 million in the first three months of 2021, a period in which we overcame the impact of the severe winter weather in February 2021. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 89.2% in the first three months of 2021 from 91.8% in the first three months of 2020. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 87.9% in the first three months of 2021 from 90.7% in the first three months of 2020. Our net income improved 31.3% to $18.0 million, or $0.22 per diluted share, in the first three months of 2021 from $13.7 million, or $0.17 per diluted share, in the first three months of 2020.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At March 31, 2021, we had $88.6 million of cash and cash equivalents, $635.0 million in stockholders’ equity and no long-term debt outstanding. In the first three months of 2021, net cash flows provided by operating activities of $43.6 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $16.3 million, to pay cash dividends of $3.3 million, and to upgrade regional operating facilities in the amount of $591,000, resulting in a $22.5 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $135 million for the remainder of 2021. 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 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.

Stock Split

On August 13, 2020, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% stock dividend. Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

COVID-19 Update

The demand that our customers have from their customers within the COVID-19 pandemic for the food, beverages and other consumer goods that we transport and distribute varies significantly for each customer across their individual products, by region and in total – with the level of demand by freight lane also subject to significant fluctuations. Our continual redeployment of our drivers to match the changing freight demand by lane while minimizing empty miles has been and will continue to be imperative to the utilization of our revenue equipment and our operating revenue through this environment. Our execution of our unique multifaceted business model across our diverse customer base, including our ability to quickly make data-driven decisions and adjustments utilizing our in-house operating technology, has and will continue to be one of our key strengths as we proactively navigate through this fast-changing landscape in providing our essential service.

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 believe we are well-positioned for the sustainability of our business from a balance sheet perspective.

We fully embrace our responsibility to keep our valued employees safe, healthy and informed and have implemented measures including the following:

Throughout our headquarters and regional operating facilities, we are applying the social distancing guidelines by having a number of our office employees work from their homes and by staggering shift and break times for our maintenance personnel.

We have increased the frequency and extent of disinfecting and cleaning of each of our facilities and thoroughly disinfect all tractors prior to assignment to our drivers.

We provide hand sanitizer and masks to all of our employees. When hand sanitizer was not available in March 2020, we purchased the components and prepared and distributed over 6,000 bottles.

We provide clear communication to our employees promoting essential healthy hygiene habits and assist in responsibly responding to potential symptoms including self-quarantining and testing.

Results of Operations

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

	Three Months
	Ended March 31,
	2021		2020
Truckload Segment:
Revenue (in thousands)	$	94,915	$	95,132
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	4,057	$	3,814
Average tractors⁽¹⁾		1,609		1,691
Average miles per trip		534		559
Total miles (in thousands)		38,283		41,039

Dedicated Segment:
Revenue (in thousands)	$	78,237	$	75,037
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	3,214	$	3,304
Average tractors⁽¹⁾		1,619		1,494
Average miles per trip		307		306
Total miles (in thousands)		31,999		31,536

Intermodal Segment:
Revenue (in thousands)	$	22,004	$	23,680
Loads		7,982		9,737
Average tractors		134		100

Brokerage Segment:
Revenue (in thousands)	$	27,890	$	24,797
Loads		14,575		16,108

(1)	Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 133 and 106 tractors as of March 31, 2021 and 2020, respectively.

Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020

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 Ended						Three Months Ended			Three Months Ended
	March 31,						March 31,			March 31,
(Dollars in thousands)	2021			2020			2021 vs. 2020			2021 vs. 2020
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	83,919		$	83,857		$	62			0.1	%
Truckload fuel surcharge revenue		10,996			11,275			(279	)		(2.5	)
Total Truckload revenue		94,915			95,132			(217	)		(0.2	)

Dedicated revenue, net of fuel surcharge revenue		66,902			64,159			2,743			4.3
Dedicated fuel surcharge revenue		11,335			10,878			457			4.2
Total Dedicated revenue		78,237			75,037			3,200			4.3

Intermodal revenue, net of fuel surcharge revenue		19,446			20,594			(1,148	)		(5.6	)
Intermodal fuel surcharge revenue		2,558			3,086			(528	)		(17.1	)
Total Intermodal revenue		22,004			23,680			(1,676	)		(7.1	)

Brokerage revenue		27,890			24,797			3,093			12.5

Total operating revenue	$	223,046		$	218,646		$	4,400			2.0	%

Operating income:
Truckload	$	11,415		$	6,785		$	4,630			68.2	%
Dedicated		8,936			8,533			403			4.7
Intermodal		1,461			1,306			155			11.9
Brokerage		2,186			1,408			778			55.3
Total operating income	$	23,998		$	18,032		$	5,966			33.1	%

Operating ratio⁽¹⁾:
Truckload		88.0	%		92.9	%
Dedicated		88.6			88.6
Intermodal		93.4			94.5
Brokerage		92.2			94.3
Consolidated operating ratio		89.2	%		91.8	%

(1)

Represents operating expenses as a percentage of operating revenue.

Our operating revenue increased $4.4 million, or 2.0%, to $223.0 million in the 2021 period from $218.6 million in the 2020 period. Our operating revenue, net of fuel surcharges, increased $4.8 million, or 2.5%, to $198.2 million in the 2021 period from $193.4 million in the 2020 period. This increase was due to a $3.1 million increase in Brokerage revenue, a $2.7 million increase in Dedicated revenue, net of fuel surcharges, and a $62,000 increase in Truckload revenue, net of fuel surcharges, partially offset by a $1.1 million decrease in Intermodal revenue, net of fuel surcharges. Fuel surcharge revenue decreased slightly to $24.9 million in the 2021 period from $25.2 million in the 2020 period.

Truckload segment revenue decreased $217,000, or 0.2%, to $94.9 million in the 2021 period from $95.1 million in the 2020 period. Truckload segment revenue, net of fuel surcharges, increased $62,000, or 0.1%, and was $83.9 million in each of the 2021 and 2020 periods. During the 2021 period, an increase in our average revenue per tractor was substantially offset by a reduction in our average number of tractors. The improvement in the operating ratio in the 2021 period was primarily due to an increase in our average revenue per tractor due to increased rates with our customers.

Dedicated segment revenue increased $3.2 million, or 4.3%, to $78.2 million in the 2021 period from $75.0 million in the 2020 period. Dedicated segment revenue, net of fuel surcharges, increased 4.3% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The operating ratio was consistent in both the 2021 and 2020 periods.

Intermodal segment revenue decreased $1.7 million, or 7.1%, to $22.0 million in the 2021 period from $23.7 million in the 2020 period. Intermodal segment revenue, net of fuel surcharges, decreased 5.6% from the 2020 period primarily due to a decrease in load volume. The improvement in the operating ratio in the 2021 period was primarily due to a decrease in the amounts payable to railroads as a percentage of our revenue.

Brokerage segment revenue increased $3.1 million, or 12.5%, to $27.9 million in the 2021 period from $24.8 million in the 2020 period primarily due to an increase in revenue per load. The improvement in the operating ratio in the 2021 period was primarily due to a decrease in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue and increased rates with our customers.

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 March 31,			Three Months Ended March 31,			Three Months Ended March 31,
(Dollars in thousands)	2021 vs. 2020			2021 vs. 2020			2021			2020

Operating revenue	$	4,400			2.0	%		100.0	%		100.0	%
Operating expenses (income):
Salaries, wages and benefits		237			0.3			32.7			33.3
Purchased transportation		320			0.8			18.3			18.5
Fuel and fuel taxes		640			2.3			13.0			12.9
Supplies and maintenance		(1,213	)		(9.9	)		4.9			5.6
Depreciation		260			1.0			11.5			11.6
Operating taxes and licenses		73			2.8			1.2			1.2
Insurance and claims		(838	)		(6.8	)		5.1			5.6
Communications and utilities		98			4.9			0.9			0.9
Gain on disposition of revenue equipment		(429	)		(27.6	)		(0.9	)		(0.7	)
Other		(714	)		(11.7	)		2.4			2.8
Total operating expenses		(1,566	)		(0.8	)		89.2			91.8
Operating income		5,966			33.1			10.8			8.2
Other		87			89.7			-			-
Income before income taxes		5,879			32.4			10.8			8.3
Income taxes expense		1,591			36.1			2.7			2.0
Net income	$	4,288			31.3	%		8.1	%		6.3	%

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the size of our Truckload, Dedicated and Intermodal tractor fleets, the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. Salaries, wages and benefits expense increased $237,000, or 0.3%, in the 2021 period from the 2020 period. Bonus compensation expense for our non-driver employees increased by $1.1 million in the 2021 period. This increase, along with other smaller increases in the components of salaries, wages and benefits, were partially offset by a $1.4 million decrease in employees’ health insurance expense as a result of lower self-insured medical claims.

Purchased transportation consists of amounts payable to railroads and carriers for transportation services we arrange in connection with Brokerage and Intermodal operations and to independent contractor providers of revenue equipment. This category will vary depending upon the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers, the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors. Purchased transportation expense increased $320,000 in total, or 0.8%, in the 2021 period from the 2020 period. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment decreased $3.2 million to $12.6 million in the 2021 period from $15.8 million in the 2020 period, primarily due to a decrease in the volume of loads moved on the rail. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $2.5 million to $23.6 million in the 2021 period from $21.1 million in the 2020 period, primarily due to an increase in the cost per load within the tight freight market. The portion of purchased transportation expense related to independent contractors within our Truckload and Dedicated segments, including fuel surcharges, increased $1.1 million in the 2021 period as the number of independent contractors rose. We expect our purchased transportation expense to increase as we grow our Intermodal and Brokerage segments.

Fuel and fuel taxes increased by $640,000, or 2.3%, in the 2021 period from the 2020 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) increased $332,000, or 5.3%, to $6.6 million in the 2021 period from $6.3 million in the 2020 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads decreased to $2.6 million from $3.2 million in the 2020 period. The United States Department of Energy, or DOE, national average cost of fuel increased slightly to $2.91 per gallon from $2.88 per gallon in the 2020 period. Net fuel expense increased to 3.9% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 3.7% in the 2020 period. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. Our supplies and maintenance expense decreased $1.2 million, or 9.9%, from the 2020 period primarily due to lower parts, tires and outside repair costs.

Insurance and claims consist of the costs of insurance premiums and accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The $838,000, or 6.8%, decrease in insurance and claims in the 2021 period was primarily due to a decrease in the cost of our self-insured auto liability claims, partially offset by increased insurance premiums. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods which could materially impact our financial results depending on the frequency, severity and timing of claims.

Gain on disposition of revenue equipment was $2.0 million in the 2021 period, up from $1.6 million in the 2020 period primarily due to an increase in the number of tractors and trailers sold. Future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.

The $714,000 decrease in other operating expenses in the 2021 period was primarily due to decreased costs associated with travel and entertainment.

Our operating income improved 33.1% to $24.0 million in the 2021 period from $18.0 million in the 2020 period as a result of the foregoing factors and by overcoming the impact of the severe winter weather in February 2021. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 89.2% in the 2021 period from 91.8% in the 2020 period. The operating ratio for our Truckload segment was 88.0% in the 2021 period and 92.9% in the 2020 period, for our Dedicated segment was 88.6% in each of the 2021 and 2020 periods, for our Intermodal segment was 93.4% in the 2021 period and 94.5% in the 2020 period, and for our Brokerage segment was 92.2% in the 2021 period and 94.3% in the 2020 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 87.9% in the 2021 period from 90.7% in the 2020 period.

Our effective income tax rate increased to 25.0% in the 2021 period from 24.3% in the 2020 period.

As a result of the factors described above, net income improved 31.3% to $18.0 million, or $0.22 per diluted share, in the 2021 period from $13.7 million, or $0.17 per diluted share, in the 2020 period.

Liquidity and Capital Resources

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. Our primary sources of liquidity are funds provided by operations and our revolving credit facility. A portion of our tractor fleet is provided by independent contractors who own and operate their own equipment. We have no capital expenditure requirements relating to those drivers who own their tractors or obtain financing through third parties.

The table below reflects our net cash flows provided by operating activities, net cash flows used for investing activities and net cash flows used for financing activities for the periods indicated.

	Three Months Ended March 31,
(In thousands)	2021			2020
Net cash flows provided by operating activities	$	43,570		$	43,480
Net cash flows used for investing activities		(17,417	)		(36,632	)
Net cash flows used for financing activities		(3,697	)		(2,173	)

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. 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 53,064 shares of common stock for $597,000 in the first quarter of 2020. We did not repurchase any shares in the rest of 2020 or in the first quarter of 2021. As of March 31, 2021, future repurchases of up to $33.4 million, or approximately 2.6 million shares, were available in the share repurchase program.

In the first three months of 2021, net cash flows provided by operating activities of $43.6 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $16.3 million, to pay cash dividends of $3.3 million, and to upgrade regional operating facilities in the amount of $591,000, resulting in a $22.5 million increase in cash and cash equivalents. In the first three months of 2020, net cash flows provided by operating activities of $43.5 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $34.6 million, to pay cash dividends of $2.2 million, and to upgrade regional operating facilities in the amount of $983,000, resulting in a $4.7 million increase in cash and cash equivalents. Beginning in 2018, our net cash flows have been increased by the new tax laws established by the Tax Cuts and Jobs Act of 2017, which reduces the federal corporate statutory income tax rate and establishes bonus depreciation that allows for full expensing of qualified assets.

We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $135 million for the remainder of 2021. A quarterly cash dividend of $0.04 per share of common stock was declared in the first quarter of 2021 which totaled $3.3 million. A quarterly cash dividend of $0.027 per share of common stock was declared in the first quarter of 2020 which totaled $2.2 million. We currently expect to continue to pay quarterly cash dividends in the future. The payment of cash dividends in the future, and the amount of any such dividends, will depend upon our financial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors. 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 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 March 31, 2021, 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 $17.0 million and remaining borrowing availability of $13.0 million. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender’s Prime Rate, in each case plus/minus applicable margins.

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. A waiver allowing stock redemptions and dividends in excess of the 25% limitation in a total amount of up to $60 million in 2020 was obtained from the lender in November 2020. 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 March 31, 2021 and December 31, 2020.

The following is a summary of our contractual obligations as of March 31, 2021.

	Payments Due by Period
(In thousands)	Remainder of 2021		2022 And 2023		2024 And 2025		Thereafter		Total
Purchase obligations for revenue equipment	$	89,283	$	—	$	—	$	—	$	89,283
Operating lease obligations		376		334		116		—		826
Total	$	89,659	$	334	$	116	$	—	$	90,109

The obligation to issue shares of our common stock under our nonqualified deferred compensation plan at March 31, 2021 of 394,985 shares of Company common stock with a value of $6.7 million has been excluded from the above table.

Off-balance Sheet Arrangements

Other than standby letters of credit maintained in connection with our self-insurance programs in the amount of $17.0 million along with purchase obligations and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at March 31, 2021.

Inflation and Fuel Costs

Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the last two years, the most significant effects of inflation have been on revenue equipment prices, accident claims, health insurance and employee compensation. We attempt to limit the effects of inflation through increases in freight rates and cost control efforts.

In addition to inflation, fluctuations in fuel prices can affect our profitability. We require substantial amounts of fuel to operate our tractors and power the temperature-control units on our trailers. Substantially all of our contracts with customers contain fuel surcharge provisions. Although we historically have been able to pass through a significant portion of long-term increases in fuel prices and related taxes to customers in the form of fuel surcharges and higher rates, such increases usually are not fully recovered. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling.

Seasonality

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with harsh weather creating higher accident frequency, increased claims, lower fuel efficiency and more equipment repairs.

Critical Accounting Policies

Our critical accounting policies are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2020. We have reviewed and determined that those critical accounting policies remain our critical accounting policies as of and for the three months ended March 31, 2021, and that there have been no material changes to our critical accounting policies during this period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to a variety of market risks, most importantly the effects of the price and availability of diesel fuel. We require substantial amounts of diesel fuel to operate our tractors and power the temperature-control units on our trailers. The price and availability of diesel fuel can vary, and are subject to political, economic and market factors that are beyond our control. Significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our fuel consumption in the first three months of 2021, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $1.4 million.

We have historically been able to pass through a significant portion of long-term increases in diesel fuel prices and related taxes to customers in the form of fuel surcharges. Fuel surcharge programs are widely accepted among our customers, though they can vary somewhat from customer-to-customer. These fuel surcharges, which adjust weekly with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling. In addition, we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers’ refrigeration units.

While we do not currently have any outstanding hedging instruments to mitigate this market risk, we may enter into derivatives or other financial instruments to hedge a portion of our fuel costs in the future.

Item 4. Controls and Procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Executive Vice President and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. We intend to periodically evaluate our disclosure controls and procedures as required by the Exchange Act Rules.

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

There have been no material changes in the risk factors disclosed by us under Part I, Item 1A. Risk Factors contained in the Annual Report on Form 10-K for the year ended December 31, 2020.

Item 6. Exhibits.

Item No.	Item	Method of Filing
31.1	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Randolph L. Marten, the Registrant’s Chief Executive Officer (Principal Executive Officer)	Filed with this Report.

31.2	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by James J. Hinnendael, the Registrant’s Executive Vice President and Chief Financial Officer (Principal Financial Officer)	Filed with this Report.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed with this Report.

101	The following financial information from Marten Transport, Ltd.’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, filed with the SEC on May 7, 2021, formatted in iXBRL, or Inline eXtensible Business Reporting Language: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Stockholders’ Equity, (iv) Consolidated Condensed Statements of Cash Flows, and (v) Notes to Consolidated Condensed Financial Statements	Filed with this Report.

104	The cover page from Marten Transport, Ltd.’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, formatted in iXBRL, included in Exhibit 101	Filed with this Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MARTEN TRANSPORT, LTD.


Dated: May 7, 2021	By:	/s/ Randolph L. Marten
		Randolph L. Marten
		Chief Executive Officer
		(Principal Executive Officer)


Dated: May 7, 2021	By:	/s/ James J. Hinnendael
		James J. Hinnendael
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Marten Transport, Ltd.