Business Overview and History

Marten Transport, Ltd. (MRTN) is a multifaceted transportation and logistics company that has strategically evolved from a refrigerated long-haul carrier to a diverse service provider with a network of temperature-sensitive and dry truck-based transportation capabilities. Over its nearly 80-year history, Marten has established itself as one of the leading temperature-sensitive truckload carriers in the United States, specializing in the transportation and distribution of food and other consumer packaged goods that require a temperature-controlled or insulated environment.

Marten Transport was founded in 1946 as a sole proprietorship by Roger R. Marten. In 1970, the company was organized under Wisconsin law and reincorporated under Delaware law in 1988. Over the decades, Marten has grown into a diversified transportation and logistics provider with six distinct business platforms: Temperature-Sensitive and Dry Truckload, Dedicated, Intermodal, Brokerage, MRTN de Mexico, and Marten Transport Logistics.

The company's growth and evolution have been guided by strong leadership, particularly under Randolph L. Marten, the founder's son. Randolph has been a full-time employee of the company since 1974 and has held various leadership roles, including serving as President from 1986 to 2008, Chief Operating Officer from 1986 to 1998, Chairman of the Board from 1993 to 2021, and Chief Executive Officer from 2005 to 2021. His long-standing involvement has been instrumental in shaping the company's strategic direction and navigating industry challenges.

Throughout its history, Marten Transport has faced and overcome various challenges inherent to the trucking industry. These include operating in the highly competitive and fragmented truckload market, managing fluctuations in fuel prices, and addressing the industry-wide shortage of qualified drivers. The company has also had to adapt to changes in regulations, such as the implementation of electronic logging devices (ELDs) and the Commercial Drivers License Drug and Alcohol Clearinghouse.

Despite these challenges, Marten has continued to grow and expand its service offerings, focusing on providing high-quality service to its customers. The company's geographical footprint spans the United States, with its primary traffic lanes connecting the Midwest to the West Coast, Southwest, Southeast, and East Coast regions. Marten also has a presence in parts of Mexico and Canada, although the vast majority of its revenue is generated within the United States.

The company's Truckload segment provides a combination of regional short-haul and medium-to-long-haul full-load transportation services, moving temperature-sensitive goods as well as dry freight across the United States, Canada, and Mexico. Marten's Dedicated segment offers customized transportation solutions tailored to individual customer requirements, utilizing temperature-controlled trailers, dry vans, and other specialized equipment within the United States. The Intermodal segment transports customers' freight within the U.S. using Marten's refrigerated containers on railroad flatcars, complemented by the company's own tractors or contracted carriers. Marten's Brokerage segment arranges for third-party carriers to transport freight for customers in temperature-controlled trailers and dry vans within the U.S. and into/out of Mexico.

Over the years, Marten has strategically pivoted its business mix to become less reliant on long-haul refrigerated freight and more diversified across its various service offerings. In 2024, approximately 59% of Marten's Truckload and Dedicated revenue came from hauling temperature-sensitive products, while 41% was derived from dry freight. This shift has helped the company navigate volatility in the truckload market and capitalize on opportunities in other transportation segments.

Marten's geographical footprint spans the United States, with its primary traffic lanes connecting the Midwest to the West Coast, Southwest, Southeast, and East Coast regions. The company also has a presence in parts of Mexico and Canada. In 2024, Marten generated $963.7 million in operating revenue, with approximately 99% of its revenue originating within the United States.

Financial Performance and Metrics

Over the past three years, Marten's financial performance has been impacted by the volatility in the truckload market and broader economic conditions. In 2024, the company reported net income of $26.9 million, or $0.33 per diluted share, compared to $70.4 million, or $0.86 per diluted share, in 2023. Operating revenue declined 14.8% year-over-year to $963.7 million in 2024, with the Truckload, Dedicated, Intermodal, and Brokerage segments all experiencing top-line decreases.

The decline in Marten's 2024 financial results was primarily driven by softening freight demand, increased inflationary pressures on operating costs, and a lower gain on the sale of revenue equipment compared to the prior year. The company's operating ratio, a key industry metric that measures operating expenses as a percentage of revenue, deteriorated to 96.6% in 2024 from 92.0% in 2023, indicating the challenges Marten faced in managing its cost structure amidst a difficult market environment.

Financials

Despite the headwinds, Marten maintained a strong balance sheet, ending 2024 with $17.3 million in cash and cash equivalents and no long-term debt. The company's tangible book value stood at $767.9 million as of December 31, 2024. Marten has continued to invest in its fleet and infrastructure, with net capital expenditures of $146.8 million in 2024. The company also returned capital to shareholders through its quarterly dividend program, paying out $19.5 million in dividends during the year.

For the full year 2024, Marten reported:

• Annual revenue: $963.7 million
• Annual net income: $26.9 million
• Annual operating cash flow: $134.8 million
• Annual free cash flow: -$98.4 million

In the most recent quarter (Q4 2024), Marten's performance was as follows:

• Quarterly revenue: $230.4 million
• Quarterly net income: $5.6 million
• YoY revenue growth: -14.1% (vs Q4 2023)

The decrease in quarterly revenue was primarily due to a 29% decline in fuel surcharge revenue.

Liquidity

Marten Transport's strong liquidity position is evidenced by its cash reserves and absence of long-term debt. This financial flexibility allows the company to continue investing in its operations and pursue strategic opportunities despite challenging market conditions. Key liquidity metrics include:

• Debt/Equity ratio: 0.00037

• Cash and cash equivalents: $17.3 million as of December 31, 2024
• Available credit line: $6.9 million under a $30 million unsecured credit facility as of December 31, 2024
• Current ratio: 1.48
• Quick ratio: 1.48

Operational Highlights and Strategic Initiatives

Marten's diversified business model has been a key strength in navigating the challenging truckload market. The company's Dedicated and Intermodal segments have helped offset some of the volatility experienced in the Truckload unit, as evidenced by the Dedicated segment's relatively stronger performance in 2024.

To further enhance its operational efficiency and sustainability, Marten has invested in various initiatives, including:

1. Fleet Modernization: The company maintains a relatively new and standardized fleet of tractors and trailers, with an average tractor age of 1.9 years and an average trailer age of 5.3 years as of December 31, 2024. This allows Marten to operate with greater fuel efficiency and lower maintenance costs.

2. Technology Adoption: Marten has implemented various technological solutions to improve fleet management, enhance driver safety, and optimize fuel usage. This includes the use of auxiliary power units, terrestrial-based tracking equipment, and electronic logging devices.

3. Sustainability Efforts: The company has dedicated considerable time and resources to implementing long-term environmentally sustainable solutions, such as reducing tractor idling, improving trailer insulation and refrigeration unit efficiency, and transitioning to more energy-efficient lighting and power sources at its facilities.

4. Safety and Compliance: Marten maintains a strong focus on safety, with a comprehensive driver training program and strict adherence to regulatory requirements. The company's safety performance and proactive compliance efforts have been instrumental in building trust with customers and mitigating risks.

Segment Performance

Marten Transport operates across four main reporting segments: Truckload, Dedicated, Intermodal, and Brokerage. Each segment's performance in 2024 reflects the broader challenges faced by the company and the industry as a whole.

Truckload Segment: Revenue decreased 5.5% to $439.8 million in 2024 from $465.5 million in 2023, primarily due to a decrease in the average revenue per tractor, despite an increase in the average fleet size. The segment's operating ratio increased to 99.3% in 2024 from 94.7% in 2023, impacted by the decrease in average revenue per tractor along with higher company driver compensation, depreciation, maintenance, and a lower gain on disposition of revenue equipment.

Dedicated Segment: Revenue decreased 21.8% to $319.1 million in 2024 from $408.3 million in 2023, primarily due to decreases in both the average fleet size and the average revenue per tractor. The segment's operating ratio increased to 92.8% in 2024 from 88.2% in 2023, impacted by the decrease in average revenue per tractor along with higher company driver compensation, depreciation, and a lower gain on disposition of revenue equipment.

Intermodal Segment: Revenue decreased 36.2% to $58.8 million in 2024 from $92.1 million in 2023, primarily due to decreases in both the number of loads and the revenue per load. The segment's operating ratio increased to 106.7% in 2024 from 100.2% in 2023, impacted by the decrease in revenue per load along with higher depreciation, maintenance, and purchased transportation costs.

Brokerage Segment: Revenue decreased 11.8% to $146.0 million in 2024 from $165.6 million in 2023, primarily due to a decrease in the revenue per load. The segment's operating ratio increased to 92.6% in 2024 from 89.7% in 2023, primarily due to an increase in the amounts payable to carriers for transportation services as a percentage of Brokerage revenue.

Risks and Challenges

Marten Transport, like other transportation and logistics companies, faces a variety of risks and challenges that could impact its future performance:

1. Intense Competition: The truckload industry is highly competitive, with Marten competing with numerous other carriers, as well as alternative modes of transportation such as less-than-truckload carriers, railroads, and freight logistics providers.

2. Regulatory Environment: The company's operations are subject to a complex and evolving regulatory landscape, including hours-of-service rules, emissions standards, and other safety and environmental regulations that can increase operating costs and require continuous adaptation.

3. Driver Shortages: The transportation industry has historically experienced difficulty in attracting and retaining qualified drivers, which can impact Marten's ability to maintain its fleet and meet customer demand.

4. Macroeconomic Conditions: As a transportation provider, Marten's performance is closely tied to broader economic trends and the health of the industries it serves, such as consumer goods and food production.

5. Fuel Price Volatility: Fluctuations in diesel fuel prices can significantly impact Marten's operating expenses, which the company seeks to manage through various fuel surcharge programs and efficiency initiatives.

6. Insurance and Claims Costs: The company's exposure to liability claims, particularly in the auto liability and workers' compensation areas, can result in increased insurance costs and claims-related expenses.

Industry Trends

The temperature-sensitive truckload industry, in which Marten Transport operates, has seen moderate growth with a compound annual growth rate (CAGR) of around 4-5% over the past 5 years. However, the overall trucking industry has faced significant challenges, including persistent driver shortages and inflationary pressures on operating costs. These trends have impacted Marten's operations and financial performance, as reflected in the company's 2024 results.

Outlook and Conclusion

Marten Transport's performance in 2024 reflected the challenging conditions in the truckload market, with softening freight demand and inflationary pressures weighing on the company's financial results. However, the diversification of Marten's business model, its focus on operational efficiency, and its strong balance sheet have positioned the company to navigate these industry headwinds.

Looking ahead, Marten's management has expressed cautious optimism about the potential for a gradual market recovery, citing signs of improving freight demand and supply-chain stabilization. The company remains committed to its strategic initiatives, including further enhancing its service capabilities, expanding its geographic reach, and investing in sustainable transportation solutions.

Despite the near-term challenges, Marten Transport's long-standing history, diversified service offerings, and disciplined approach to operations and capital allocation suggest the company is well-equipped to navigate the evolving transportation landscape and capitalize on future growth opportunities. As the industry continues to evolve, Marten's ability to adapt and deliver high-quality services to its diverse customer base will be key to its long-term success.

The company's strong market position in the temperature-sensitive transportation sector, combined with its ongoing efforts to optimize its operations and expand its service offerings, provides a solid foundation for future growth. As economic conditions improve and supply chain disruptions ease, Marten Transport is well-positioned to leverage its strengths and capitalize on emerging opportunities in the transportation and logistics industry.