Marten Transport Ltd: Form 10-Q for the period ended Jun 30, 2024

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, 2023. 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 time and temperature-sensitive and dry truck-based transportation and distribution capabilities across our five distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico.

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

Our Dedicated segment provides customized transportation solutions tailored to meet 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.

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

Our Intermodal segment transports our customers’ freight within the United States utilizing our refrigerated containers 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.

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

Our operating revenue decreased $87.8 million, or 15.0%, in the first six months of 2024 from the first six months of 2023. Our operating revenue, net of fuel surcharges, decreased $74.3 million, or 14.8%, compared with the first six months of 2023. Truckload segment revenue, net of fuel surcharges, decreased 6.1% from the first six months of 2023, primarily due to a decrease in our average revenue per tractor, despite an increase in our average fleet size. Dedicated segment revenue, net of fuel surcharges, decreased 20.1% from the first six months of 2023, primarily due to decreases in both our average fleet size and our average revenue per tractor. Intermodal segment revenue, net of fuel surcharges, decreased 38.5% from the first six months of 2023, primarily due to decreases in both our number of loads and our revenue per load. Brokerage segment revenue decreased 12.5% from the first six months of 2023, primarily due to a decrease in our revenue per load. Fuel surcharge revenue decreased to $66.6 million in the first six months of 2024 from $80.1 million in the first six months of 2023.

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

Our operating income declined 61.2% to $22.2 million in the first six months of 2024 from $57.2 million in the first six months of 2023. Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 95.5% in the first six months of 2024 and 90.2% in the first six months of 2023. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, increased to 94.8% in the first six months of 2024 from 88.6% in the first six months of 2023. Our net income declined 60.5% to $17.5 million, or $0.22 per diluted share, in the first six months of 2024 from $44.4 million, or $0.55 per diluted share, in the first six months of 2023.

Our business requires substantial ongoing capital investments, particularly for new tractors and trailers. At June 30, 2024, we had $77.2 million of cash and cash equivalents, $766.8 million in stockholders’ equity and no long-term debt outstanding. In the first six months of 2024, net cash flows provided by operating activities of $81.5 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $44.2 million, to pay cash dividends of $9.8 million and to construct and upgrade regional operating facilities in the amount of $3.3 million, resulting in a $24.0 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $102 million for the remainder of 2024. Quarterly cash dividends of $0.06 per share of common stock were paid in each of the first two quarters of 2024 which totaled $9.8 million. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

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

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

Results of Operations

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

(1) Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 90 and 98 tractors as of June 30, 2024 and 2023, respectively.

Comparison of Three Months Ended June 30, 2024 to Three Months Ended June 30, 2023

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:

(Dollars in thousands)

Our operating revenue decreased $39.4 million, or 13.8%, to $246.2 million in the 2024 period from $285.7 million in the 2023 period. Our operating revenue, net of fuel surcharges, decreased $35.1 million, or 14.1%, to $213.5 million in the 2024 period from $248.6 million in the 2023 period. This decrease in the 2024 period was due to a $20.0 million decrease in Dedicated revenue, net of fuel surcharges, a $6.1 million decrease in Intermodal revenue, net of fuel surcharges, a $5.2 million decrease in Truckload revenue, net of fuel surcharges, and a $3.8 million decrease in Brokerage revenue. Fuel surcharge revenue decreased to $32.7 million in the 2024 period from $37.0 million in the 2023 period.

In addition to the factors discussed below, our profitability across each segment in the 2024 period was impacted by a freight market which has considerably softened from the conditions during the 2023 period.

Truckload segment revenue decreased $4.6 million, or 3.9%, to $112.5 million in the 2024 period from $117.1 million in the 2023 period. Truckload segment revenue, net of fuel surcharges, decreased $5.2 million, or 5.2%, to $96.0 million in the 2024 period from $101.3 million in the 2023 period, primarily due to a decrease in our average revenue per tractor, despite an increase in our average fleet size. The operating ratio increased to 99.0% in the 2024 period from 91.8% in the 2023 period. Impacting the 2024 period operating ratio was the decrease in our average revenue per tractor along with higher company driver compensation, depreciation, insurance and claims and maintenance costs and a lower gain on disposition of revenue equipment, as a percentage of revenue.

Dedicated segment revenue decreased $23.7 million, or 22.6%, to $81.3 million in the 2024 period from $105.0 million in the 2023 period. Dedicated segment revenue, net of fuel surcharges, decreased 22.9%, primarily due to decreases in both our average fleet size and our average revenue per tractor. The operating ratio increased to 91.8% in the 2024 period from 86.5% in the 2023 period. Impacting the 2024 period operating ratio was the decrease in our average revenue per tractor along with higher company driver compensation, depreciation, purchased transportation and insurance and claims costs and a lower gain on disposition of revenue equipment, as a percentage of revenue.

Intermodal segment revenue decreased $7.3 million, or 32.6%, to $15.1 million in the 2024 period from $22.4 million in the 2023 period. Intermodal segment revenue, net of fuel surcharges, decreased 32.5% from the 2023 period, primarily due to decreases in both our number of loads and our revenue per load. The operating ratio in the 2024 period increased to 104.5% from 100.7% in the 2023 period. Impacting the 2024 period operating ratio was the decrease in our revenue per load along with higher purchased transportation, depreciation and net fuel costs, as a percentage of revenue.

Brokerage segment revenue decreased $3.8 million, or 9.2%, to $37.4 million in the 2024 period from $41.2 million in the 2023 period, primarily due to a decrease in our revenue per load. The operating ratio in the 2024 period of 92.3% was up from 88.7% in the 2023 period. This increase was primarily due to an increase in amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.

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

(Dollars in thousands)

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 decreased $9.8 million, or 10.2%, in the 2024 period from the 2023 period. This decrease resulted primarily from lower company driver compensation expense of $8.3 million and a $1.1 million decrease in non-driver compensation expense.

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 decreased $5.1 million in total, or 10.5%, in the 2024 period from the 2023 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment decreased $2.2 million to $31.3 million in the 2024 period from $33.5 million in the 2023 period, primarily due to a decrease in our cost per load. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment decreased to $7.9 million in the 2024 period from $11.1 million in the 2023 period, primarily due to a decrease in our number of loads. The portion of purchased transportation expense related to independent contractors within our Truckload and Dedicated segments, including fuel surcharges, increased $277,000 in the 2024 period. We expect our purchased transportation expense to increase as we grow our Intermodal and Brokerage segments.

Fuel and fuel taxes decreased by $3.4 million, or 8.1%, in the 2024 period from the 2023 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 $155,000, or 1.8%, to $8.7 million in the 2024 period from $8.6 million in the 2023 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads decreased to $2.6 million from $3.4 million in the 2023 period. The United States Department of Energy, or DOE, national average cost of fuel decreased to $3.86 per gallon from $3.94 per gallon in the 2023 period. Despite this price decrease, our net fuel expense increased to 5.0% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, in the 2024 period from 4.1% in the 2023 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.

Depreciation relates to owned tractors, trailers, containers, auxiliary power units, communication units, terminal facilities and other assets. The $1.2 million, or 4.1%, decrease in depreciation in the 2024 period was primarily due to a decrease in our average tractor fleet size, partially offset by higher prices of new equipment. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of continued higher prices of new equipment, which will result in greater depreciation over the useful life.

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 $78,000, or 0.6%, increase in insurance and claims in the 2024 period was primarily due to increases in our insurance premiums, partially offset by decreases in both our self-insured auto liability and cargo claim costs. 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 $2.5 million in the 2024 period, down from $3.6 million in the 2023 period due to decreases in the average gain for our tractor and trailer sales, despite an increase in the number of units 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.

Our operating income declined 64.6% to $10.0 million in the 2024 period from $28.2 million in the 2023 period as a result of the foregoing factors. Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 95.9% in the 2024 period and 90.1% in the 2023 period. The operating ratio for our Truckload segment was 99.0% in the 2024 period and 91.8% in the 2023 period, for our Dedicated segment was 91.8% in the 2024 period and 86.5% in the 2023 period, for our Intermodal segment was 104.5% in the 2024 period and 100.7% in the 2023 period, and for our Brokerage segment was 92.3% in the 2024 period and 88.7% in the 2023 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, was 95.3% in the 2024 period and 88.7% in the 2023 period.

Our effective income tax rate increased to 28.2% in the 2024 period from 25.3% in the 2023 period.

As a result of the factors described above, net income declined 63.9% to $7.9 million, or $0.10 per diluted share, in the 2024 period from $21.9 million, or $0.27 per diluted share, in the 2023 period.

Comparison of Six Months Ended June 30, 2024 to Six Months Ended June 30, 2023

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:

(Dollars in thousands)

Our operating revenue decreased $87.8 million, or 15.0%, to $495.9 million in the 2024 period from $583.7 million in the 2023 period. Our operating revenue, net of fuel surcharges, decreased $74.3 million, or 14.8%, to $429.3 million in the 2024 period from $503.6 million in the 2023 period. This decrease in the 2024 period was due to a $35.1 million decrease in Dedicated revenue, net of fuel surcharges, a $16.2 million decrease in Intermodal revenue, net of fuel surcharges, a $12.5 million decrease in Truckload revenue, net of fuel surcharges, and a $10.5 million decrease in Brokerage revenue. Fuel surcharge revenue decreased to $66.6 million in the 2024 period from $80.1 million in the 2023 period.

In addition to the factors discussed below, our profitability across each segment in the 2024 period was impacted by a freight market which has considerably softened from the conditions during the 2023 period.

Truckload segment revenue decreased $13.7 million, or 5.8%, to $224.1 million in the 2024 period from $237.8 million in the 2023 period. Truckload segment revenue, net of fuel surcharges, decreased $12.5 million, or 6.1%, to $191.1 million in the 2024 period from $203.6 million in the 2023 period, primarily due to a decrease in our average revenue per tractor, despite an increase in our average fleet size. The operating ratio increased to 99.3% in the 2024 period from 91.8% in the 2023 period. Impacting the 2024 period operating ratio was the decrease in our average revenue per tractor along with higher company driver compensation, depreciation, maintenance and net fuel costs and a lower gain on disposition of revenue equipment, as a percentage of revenue.

Dedicated segment revenue decreased $43.7 million, or 20.7%, to $167.7 million in the 2024 period from $211.4 million in the 2023 period. Dedicated segment revenue, net of fuel surcharges, decreased 20.1%, primarily due to decreases in both our average fleet size and our average revenue per tractor. The operating ratio increased to 90.5% in the 2024 period from 86.8% in the 2023 period. Impacting the 2024 period operating ratio was the decrease in our average revenue per tractor along with higher company driver compensation, depreciation, purchased transportation and net fuel costs and a lower gain on disposition of revenue equipment, as a percentage of revenue.

Intermodal segment revenue decreased $19.9 million, or 39.1%, to $31.0 million in the 2024 period from $51.0 million in the 2023 period. Intermodal segment revenue, net of fuel surcharges, decreased 38.5% from the 2023 period, primarily due to decreases in both our number of loads and our revenue per load. The operating ratio in the 2024 period increased to 102.8% from 98.8% in the 2023 period. Impacting the 2024 period operating ratio was the decrease in our revenue per load along with higher depreciation and maintenance costs, as a percentage of revenue.

Brokerage segment revenue decreased $10.5 million, or 12.5%, to $73.1 million in the 2024 period from $83.5 million in the 2023 period, primarily due to a decrease in our revenue per load. The operating ratio in the 2024 period of 92.4% was up from 89.1% in the 2023 period. This increase was primarily due to an increase in amounts payable to carriers for transportation services which we arranged, along with higher salaries and wages, as a percentage of our Brokerage revenue.

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

(Dollars in thousands)

Salaries, wages and benefits expense decreased $19.6 million, or 10.0%, in the 2024 period from the 2023 period. This decrease resulted primarily from lower company driver compensation expense of $15.0 million, a $1.9 million decrease in non-driver compensation expense and a $1.5 million decrease in employees’ health insurance expense due to lower self-insured medical claims.

Purchased transportation expense decreased $17.4 million in total, or 16.9%, in the 2024 period from the 2023 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment decreased $7.2 million to $61.1 million in the 2024 period from $68.3 million in the 2023 period, primarily due to a decrease in our cost per load. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment decreased to $16.0 million in the 2024 period from $26.3 million in the 2023 period, primarily due to decreases in both our number of loads and cost per load. The portion of purchased transportation expense related to independent contractors within our Truckload and Dedicated segments, including fuel surcharges, increased $209,000 in the 2024 period. We expect our purchased transportation expense to increase as we grow our Intermodal and Brokerage segments.

Fuel and fuel taxes decreased by $10.6 million, or 12.0%, in the 2024 period from the 2023 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) decreased $226,000, or 1.3%, to $17.1 million in the 2024 period from $17.4 million in the 2023 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads decreased to $5.4 million from $8.5 million in the 2023 period. The DOE national average cost of fuel decreased to $3.91 per gallon from $4.18 per gallon in the 2023 period. Despite this price decrease, our net fuel expense increased to 4.8% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, in the 2024 period from 4.1% in the 2023 period.

The $2.2 million, or 3.8%, decrease in depreciation in the 2024 period was primarily due to a decrease in our average tractor fleet size, partially offset by higher prices of new equipment.

The $3.3 million, or 12.1%, decrease in insurance and claims in the 2024 period was primarily due to decreases in our self-insured auto liability claim costs, in our self-insured cost of physical damage claims related to our revenue equipment and in our self-insured workers’ compensation claim costs, partially offset by higher insurance premiums.

Gain on disposition of revenue equipment was $3.7 million in the 2024 period, down from $8.8 million in the 2023 period due to decreases in the average gain for our tractor and trailer sales, despite an increase in the number of units sold.

Our operating income declined 61.2% to $22.2 million in the 2024 period from $57.2 million in the 2023 period as a result of the foregoing factors. Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 95.5% in the 2024 period and 90.2% in the 2023 period. The operating ratio for our Truckload segment was 99.3% in the 2024 period and 91.8% in the 2023 period, for our Dedicated segment was 90.5% in the 2024 period and 86.8% in the 2023 period, for our Intermodal segment was 102.8% in the 2024 period and 98.8% in the 2023 period, and for our Brokerage segment was 92.4% in the 2024 period and 89.1% in the 2023 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, was 94.8% in the 2024 period and 88.6% in the 2023 period.

Our effective income tax rate increased to 27.0% in the 2024 period from 25.0% in the 2023 period.

As a result of the factors described above, net income declined 60.5% to $17.5 million, or $0.22 per diluted share, in the 2024 period from $44.4 million, or $0.55 per diluted share, in the 2023 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.

(In thousands)

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

We repurchased and retired 1.3 million shares of common stock for $25.0 million in the first quarter of 2022, and 963,000 shares of common stock for $16.8 million in the second quarter of 2022. We did not repurchase any shares in the first six months of 2024, in 2023, or in the third or fourth quarters of 2022. As of June 30, 2024, future repurchases of up to $33.2 million, or approximately 2.2 million shares, were available in the share repurchase program.

In the first six months of 2024, net cash flows provided by operating activities of $81.5 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $44.2 million, to pay cash dividends of $9.8 million and to construct and upgrade regional operating facilities in the amount of $3.3 million, resulting in a $24.0 million increase in cash and cash equivalents. In the first six months of 2023, net cash flows provided by operating activities of $98.2 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $84.3 million, to pay cash dividends of $9.8 million and to construct and upgrade regional operating facilities in the amount of $4.3 million, resulting in a $72,000 decrease in cash and cash equivalents.

We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $102 million for the remainder of 2024. This amount includes commitments to purchase $119.1 million of new revenue equipment, prior to considering proceeds from dispositions, and construction obligations of $308,000. Additionally, operating lease obligations total $512,000 through 2028. Quarterly cash dividends of $0.06 per share of common stock were paid in each of the first two quarters of 2024 and 2023 which totaled $9.8 million in each period. 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.

In August 2022, we entered into a credit agreement that provides for an unsecured committed credit facility with an aggregate principal amount of $30.0 million which matures in August 2027. The credit agreement amends, restates and continues in its entirety our previous credit agreement, as amended. At June 30, 2024, 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 $23.1 million and remaining borrowing availability of $6.9 million. At December 31, 2023, there was also no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit of $20.7 million on the facility. This facility bears interest at a variable rate based on the Term SOFR Rate plus applicable margins. The interest rate for the facility that would apply to outstanding principal balances was 8.5% at June 30, 2024.

Our credit agreement effective in August 2022 prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of $150 million. The current credit agreement also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at June 30, 2024 and December 31, 2023.

Other than our obligations for revenue equipment and construction purchases and operating lease expenditures, along with our outstanding standby letters of credit to guarantee settlement of self-insurance claims, which are each mentioned above, we did not have any material off-balance sheet arrangements at June 30, 2024.

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 Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated condensed financial statements and related notes. We base our estimates, assumptions and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated condensed financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe that the following area involves critical accounting estimates due to the levels of subjectivity and judgment that are necessary to account for its highly uncertain matters, the susceptibility of such matters to change and the potentially material impact these estimates and assumptions could have to our financial condition and operating performance.

Auto Liability and Workers’ Compensation Claims Reserves. We self-insure for our portion of claims exposure resulting from auto liability and workers’ compensation claims. We renewed our liability insurance policies effective June 1, 2024 and are responsible for the first $2.0 million on each auto liability claim with an annual $5.0 million aggregate for claims between $10.0 million and $20.0 million. For the policy years effective June 1, 2022 and June 1, 2023, we are responsible for the first $1.0 million on each auto liability claim with no aggregates. We continue to be responsible for the first $750,000 on each workers’ compensation claim. Additionally, we have $23.1 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities. 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. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits which could negatively affect our financial condition and operating results. Our auto liability and workers’ compensation claims expense and the related claims reserves will vary primarily based upon the frequency and severity of our accident experience. The total auto liability and workers’ compensation claims reserves within the insurance and claims accruals in our consolidated condensed balance sheets were $37.7 million and $40.3 million as of June 30, 2024 and December 31, 2023, respectively. The excess of the insurance and claims accruals over these amounts relates to general liability, cargo and property damage claims, along with reserves for physical damage to our equipment and outstanding employees’ health insurance claims.

We reserve for the estimated cost of the uninsured portion of pending auto liability and workers’ compensation claims, including legal costs. These case reserves are periodically evaluated and adjusted based on our continuing evaluation of the nature and severity of each individual claim. Claims development factors are applied to the total amount of the individual claims’ case reserves by year incurred to estimate future claims development based on our historical experience. Our claims development factors phase down each year over nine years for auto liability claims and eleven years for workers’ compensation claims from the year incurred. We also ensure that our total recorded auto liability and workers’ compensation claims reserves are within a range of reasonable amounts determined in an independent actuarial analysis. There were no changes to our methodology used to estimate our ultimate claims losses in the first six months of 2024 or in 2023. Projection of losses is subject to a high level of estimation uncertainty and actual results could differ from these current estimates. Our estimates require judgments concerning the nature and severity of each claim, historical trends, consultation with actuarial experts, settlement patterns, jury awards, litigation trends and legal interpretations, which are difficult to predict.

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 six months of 2024, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $3.8 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.

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 June 30, 2024. 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.

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, 2023.