Marten Transport
Annual Report 2018

Plain-text annual report

MARTEN TRANSPORT, LTD. 2018 Annual Report Who We Are Marten Transport, Ltd., with headquarters in Mondovi, Wisconsin, strives to be the premier supplier of time and tem- perature-sensitive and dry transportation and distribution services to customers in the United States, Canada and Mexico. We have strategically transitioned from a long-haul carrier to a multifaceted business offering a network of truck-based transportation capabil- ities across our five distinct business platforms—Truckload, Dedicated, Intermodal, Brokerage and MRTN de México. We will accomplish our mission by exceeding the expectations of our customers, employees, stockholders and society. We serve cus- tomers with demanding delivery deadlines, as well as those who ship products requiring modern temperature-controlled trailers to protect goods. Our dry freight services are expanding, with 1,600 dry vans operating as of December 31, 2018. Founded in 1946, we have been a public company since 1986. Our common stock trades on the NASDAQ Global Select Market under the symbol MRTN. At December 31, 2018, we employed 3,589 people, including drivers, office personnel and mechanics. Five-Year Financial Summary (Dollars in thousands, except per share amounts) 2018 2017 Years ended December 31, 2016 2015 FOR THE YEAR Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 787,594 70,348 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,027 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income – excluding 2017 deferred income taxes benefit(1) . 55,027 Operating ratio(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.1% $ 698,120 56,862 90,284 33,819 $ 671,144 58,303 33,464 33,464 $ 664,994 61,063 35,745 35,745 91.9% 91.3% 90.8% 92.4% 2014 $ 672,929 51,006 29,834 29,834 PER-SHARE DATA(3) Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . $ Basic earnings per common share – excluding 2017 deferred income taxes benefit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share – excluding 2017 deferred income taxes benefit(1). . . . . . . . . . . . . . . . . . . . . . . Dividends declared per common share . . . . . . . . . . . . . . . . . . Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01 $ 1.66 $ 0.62 $ 0.64 $ 0.54 1.01 1.00 1.00 0.10 10.57 0.62 1.65 0.62 0.08 9.64 0.62 0.61 0.61 0.06 8.04 0.64 0.64 0.64 0.06 7.50 0.54 0.53 0.53 0.06 6.96 AT YEAR END Total assets(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 753,904 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 575,954 Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 690,403 – 525,500 $ 653,748 7,886 437,338 $ 631,528 37,867 409,421 $ 576,461 24,373 387,926 (1) Net income and basic and diluted earnings per common share for 2017 are presented for comparative purposes excluding the $56.5 million deferred income taxes benefit recorded to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from 35% to 21% related to the Tax Cuts and Jobs Act of 2017. (2) Represents operating expenses as a percentage of operating revenue. (3) The amounts for December 31, 2014 through 2016 have been restated to reflect the five-for-three stock split effected in the form of a 662⁄3% stock dividend on July 7, 2017. (4) The amount for December 31, 2014 has been restated to reflect the reclassification of current deferred income tax assets to be consistent with the current presentation upon adoption of FASB ASU No. 2015-17, “Income Taxes” effective December 31, 2015. Note: We account for our revenue in accordance with FASB ASC 606, which we adopted on January 1, 2018 using the modified retrospective method. Prior years have not been restated and continue to be reported under the accounting standards in effect for those periods. To Our Stockholders and Employees By actively reshaping itself to fit a constantly changing and expanding marketplace, Marten Transport has evolved from a long-haul refrigerated carrier into a growing network of truck- based transportation capabilities. The impact of this continuing transition is reflected clearly in our 2018 results: improved to 91.1 percent for 2018 from 91.9 percent for 2017. Our operating ratio, net of fuel surcharges, improved to 89.7 percent for 2018 from 91.0 percent for 2017. A summary of our operating results in 2018 compared with 2017 follows. • Marten’s operating revenue and operating income were the highest for any year in the company’s history, up by 12.8 percent and 23.7 percent, respectively, from 2017. • The three reporting segments that have led the diversifi- cation and expansion of Marten’s capabilities—Dedicated, Intermodal and Brokerage—generated more than 50 per- cent of the company’s operating income in 2018, up from slightly less than 25 percent five years ago. • Marten’s operating ratio, net of fuel surcharges, was the best in 13 years. In a performance analysis entitled “Marten Transport Delivers the Goods,” the TCA Truckload Indexes newsletter recently offered this commentary on Marten’s standing within the group of mostly larger publicly-traded trucking companies that the publication follows closely: “Quarter-over-quarter, year-over- year, Marten Transport (NASDAQ: MRTN) has delivered consistent, top quartile results. Key word is consistent. When compared to many of the others, you don’t see very many blips in operating expenses or legal exposures that may cause multi-period hangovers for others…Their earnings releases and SEC filings point to a very disciplined operating team… Marten has hung with, and bettered the performance of many of the big dogs.” Consistent. Disciplined. Those are words we’re pleased to see in a respected independent assessment, because they are what we strive for at Marten—consistent profitable growth, regardless of the economic environment; disciplined execution of our mul- tifaceted business model across Marten’s entire organization. 2018 Financial Results For 2018, net income was $55.0 million, or $1.00 per diluted share. For 2017, which included a deferred income taxes ben- efit of $56.5 million related to the Tax Cuts and Jobs Act of 2017, net income was $90.3 million, or $1.65 per diluted share. Excluding the deferred income taxes benefit from the compar- ison, net income for 2018 improved 62.7 percent from $33.8 million, or 62 cents per diluted share, for 2017. Operating revenue improved 12.8 percent to a record $787.6 million for 2018 from $698.1 million for 2017. Excluding fuel surcharges, 2018 operating revenue improved 8.0 percent to $681.4 million from $631.0 million for 2017. Fuel surcharge revenue increased to $106.2 million from $67.1 million for 2017. Operating income improved 23.7 percent to a record $70.3 million for 2018 from $56.9 million for 2017. Our operating ratio (operating expenses as a percentage of operating revenue) (Dollars in thousands, except share information) Operating revenue Operating income Net income (excluding 2017 deferred income taxes benefit) Diluted earnings per common share (excluding 2017 deferred income taxes benefit) Year Ended Dec. 31, 2017 2018 Percentage Change Year Ended Dec. 31, 2018 vs. 2017 $787,594 $698,120 12.8% $ 70,348 $ 56,862 23.7% $ 55,027 $ 33,819 62.7% $ 1.00 $ 0.62 61.8% A Growing Network Marten’s strategic vision has produced a growing transportation network designed to provide the best, most-efficient service for our customers across five distinct business platforms. Truckload—regional and over-the-road fleets operating from 15 regional service centers, including dry van operations out of Kansas City, Atlanta and Phoenix facilities. While Truckload revenue was down 1.3 percent for 2018, operating income increased by 33.2 percent to $35.1 million from $26.3 million for 2017. Average revenue, net of fuel surcharges, per tractor per week—a main measure of Truckload asset productivity—improved by 9.1 percent from 2017. Truckload revenue was $375.3 million for 2018, compared with $380.2 million for 2017. Excluding fuel surcharges, Truckload revenue was $322.3 million, com- pared with $336.6 million for 2017. The 2018 Truckload oper- ating ratio was 90.7 percent, and the operating ratio, net of fuel surcharges, was 89.1 percent. Dedicated—customized solutions tailored to individual customers’ requirements utilizing refrigerated trailers, dry vans and other specialized equipment. Dedicated revenue has more than tripled over the past four years. It increased 34.1 percent to $223.9 million for 2018 from $166.9 million for 2017. Excluding fuel surcharges, Dedicated revenue improved 21.8 percent to $187.1 million from $153.7 million for 2017. Operating income was $18.6 million, up 8.9 percent from $17.1 million for 2017. The 2018 Dedicated operating ratio was 91.7 percent, and the operating ratio, net of fuel surcharges, was 90.1 percent. The average number of tractors in service grew to 1,088 from 847 tractors in 2017. Intermodal—refrigerated TOFC (trailer on flatcar) services, pro- viding the economies and energy efficiencies of long-haul rail trans- portation with extended door-to-door support from Marten’s truck network. Intermodal revenue improved 26.5 percent to $102.0 MARTEN TRANSPORT 2018 ANNUAL REPORT million for 2018 from $80.6 million for 2017. Excluding fuel surcharges, Intermodal revenue improved 21.8 percent to $85.6 million from $70.3 million for 2017. Operating income increased 34.3 percent to $11.2 million from $8.3 million for 2017. The 2018 Intermodal operating ratio was 89.1 percent, and the operating ratio, net of fuel surcharges, was 87.0 percent. Brokerage—surge flexibility to supplement Marten’s capabilities through temperature-controlled and dry van services provided by smaller third-party carriers. Brokerage revenue improved 22.7 percent to $86.4 million for 2018 from $70.4 million for 2017. Brokerage operating income increased 7.4 percent to $5.5 mil- lion from $5.2 million for 2017. The Brokerage operating ratio was 93.6 percent for 2018. Operating within our Truckload and Brokerage segments, another component of Marten’s vision and plan is MRTN de México, which provides door-to-door Mexican business service with our Mexican partner carriers. Its 2018 revenue was $69.2 million—reported as part of our Truckload and Brokerage results. Transformation In the words of John P. Kotter, the Harvard professor emeritus widely recognized for his ground-breaking work on business leadership and change, “Transformation is a process, not an event.” That’s exactly the case at Marten. We are continuing to build and transform Marten for new markets, new customers and a changing driver population in the Electronic Logging Device (ELD) era. The industry-wide driver shortage continues to be a critical problem, still reflected in tight shipping capacity nationally. While no trucking company is immune, Marten continues to enjoy a distinct competitive edge in recruiting and retaining top drivers—exclusively experienced drivers. It is an advantage that helped give us the driver resources to capitalize on the strength- ened freight environment and improved shipping rates driven by tighter capacity throughout much of 2018. Marten has focused on making itself the best carrier in the industry for drivers to work for—the best jobs for the best driv- ers. That’s meant leading the way on driver pay, route options, health coverage, safety and technology. We were one of the first companies to fully implement electronic logging – and the very first to introduce meaningful ways to compensate drivers for down time that electronic logging does not allow to be later recovered. That includes waits at customer docks, weather problems and road service delays. Our safety and driver-health measures are unquestionably setting the pace for the indus- try. Examples: We compensate our drivers for pulling off in inclement weather. We provide a fully-paid sleep apnea testing and equipment program and a fully-paid annual physical begin- ning at age 60, including a stress test and EKG. The equipment we provide is the safest available, with automatic transmissions, grill guards, radar-based collision avoidance systems and lane departure systems. MARTEN TRANSPORT 2018 ANNUAL REPORT Difference Makers The building of a multifaceted business brings together mul- tiple ingredients. Among those that have made the difference at Marten: • Our regional platform—15 regional operating centers across the nation, addressing customer trends toward regional distribution and enabling supportive interaction across our five individual business platforms. • A freight diversity and density focus that is measurably increasing productivity and resulting in more attractive driver jobs. • Customer collaboration for win-win productive and cost-efficient industry leading service. • Our in-house, industry leading and continuously changing technology system—a proprietary competitive advantage that provides the real-time visible information needed to quickly make data-driven decisions for improved supply chain productivity. Finally, and most importantly, we are building and diversifying our business with the talent and teamwork of Marten’s disci- plined workforce—dedicated and experienced people consis- tently managing and improving our processes. The emphasis on continuous improvement is part of our culture. Marten people focus daily on cost and productivity improvement—on doing their best to exceed the expectations of our customers. Marten’s people have built a strong, growing and increasingly profitable business platform for now and the future based on our five distinct business platforms. Capacity is still tight with a driver shortage that will continue to be a challenge and yet an opportunity for Marten in 2019 and beyond with the new generation of drivers and the ELD era. We expect to produce continued organic growth across all five of our operating plat- forms in 2019, with increasing compensation for our premium services, additional freight with existing and new customers, our emphasis on operating efficiencies and cost controls, and our modern fleet and strong balance sheet. Sincerely, Randolph L. Marten Chairman of the Board and Chief Executive Officer February 18, 2019 This Annual Report, including the Stockholders and Employees Letter above, contains forward-looking statements. Written words such as “may,” “expect,” “believe,” “anticipate,” “plan,” “goal,” or “estimate,” or other variations of these or similar words, identify such statements. Our actual results may differ materially from those expressed in such forward-looking statements because of important factors known to us that could cause such material differences including those noted in the attached Form 10-K under the heading “Risk Factors.” Corporate Information Corporate Headquarters 129 Marten Street Mondovi, Wisconsin 54755 Telephone: (715) 926-4216 Fax: (715) 926-4530 www.marten.com Stockholder Information Additional copies of our 2018 Annual Report on Form 10-K as filed with the Securities and Exchange Commission are available by writing to James J. Hinnendael, executive vice president and chief financial officer, at our corporate headquarters. Annual Meeting Stockholders, employees and friends may attend our annual meeting on Tuesday, May 7, 2019, at 3:00 p.m. at the Roger Marten Community Center, 120 South Franklin Street, Mondovi, Wisconsin. Stock Listing NASDAQ Global Select Market symbol: MRTN Legal Counsel Fox Rothschild LLP Campbell Mithun Tower – Suite 2000 222 South Ninth Street Minneapolis, Minnesota 55402 Independent Registered Public Accounting Firm Grant Thornton LLP 200 South Sixth Street, Suite 1400 Minneapolis, Minnesota 55402 Transfer Agent and Registrar Computershare Shareowner Services Stockholder correspondence mailing address: P.O. Box 505000 Louisville, Kentucky 40233 Overnight correspondence address: 462 South 4th Street, Suite 1600 Louisville, Kentucky 40202 Telephone: (866) 637-5412 TDD: (800) 231-5469 Foreign: (201) 680-6578 www.computershare.com/investor Stockholder online inquiries: www-us.computershare.com/investor/contact Direct communications about stock certificates or a change of address to Computershare Shareowner Services. MARTEN TRANSPORT 2018 ANNUAL REPORT Executive Officers and Directors Randolph L. Marten Chairman of the Board, Chief Executive Officer and Director Timothy M. Kohl President Timothy P. Nash Executive Vice President of Sales and Marketing James J. Hinnendael Executive Vice President and Chief Financial Officer John H. Turner Senior Vice President of Sales Thomas A. Letscher Secretary Partner, Fox Rothschild LLP Minneapolis, Minnesota Larry B. Hagness Director Chief Executive Officer, Durand Builders Service, Inc. Durand, Wisconsin Thomas J. Winkel Director Management Consultant Pewaukee, Wisconsin Jerry M. Bauer Director Chairman of the Board and Chief Executive Officer, Bauer Built, Inc. Durand, Wisconsin Robert L. Demorest Director Business Consultant and Retired President, Chief Executive Officer and Chairman of the Board, MOCON, Inc. Minneapolis, Minnesota G. Larry Owens Director Retired Chairman of the Board, Chief Executive Officer, President and Secretary, Smithway Motor Xpress Corp. Milford, Iowa Ronald R. Booth Director Retired Partner KPMG LLP Dellwood, Minnesota The 2018 Annual Report is printed on recycled paper. MARTEN TRANSPORT 2018 ANNUAL REPORT MARTEN TRANSPORT, LTD. 129 MARTEN STREET MONDOVI, WISCONSIN 54755 TELEPHONE: (715) 926-4216 FAX: (715) 926-4530 www.marten.com 

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