Proficient Auto Logistics, Inc.

Joining me on today's call are Rick O'Dell, Proficient's Chairman and Chief Executive Officer, and Amy Rice, our President and Chief Operating Officer. We will provide a company update as well as an overview of the company's combined results for the fourth quarter. After our prepared remarks, we will open the call to questions. During the Q&A, please limit yourself to one question plus one follow-up. You may get back into the queue if you have additional questions. Now, I would like to introduce Rick Odell, who will provide the company update.

Thank you, Brad, and good afternoon, everyone. I'll start out with an overview of our operations during the fourth quarter and some trends that provide insight into our expectations as we enter 2025. The macro auto industry environment in the fourth quarter was largely a continuation of the weakness we described in the third quarter. October unit volumes were relatively strong, up approximately 6% versus the same month in 2023. But by mid-November, the pace of volume slowed, ending down 4% for the quarter versus the fourth quarter of 2023. As in the third quarter, the larger issue was unit prices as slack transportation capacity and relatively high dealer inventory resulted in ongoing limited spot opportunities. persistent downward pressure on spot pricing when opportunities present, and a weak demand for dedicated fleet services. Our dedicated fleet service generated revenue of $3.7 million during the fourth quarter compared to $14.2 million in the fourth quarter of 2023. Our revenue from spot buy opportunities during the quarter comprised 5% of total revenue versus 14% a year ago. The revenue per unit from spot buys fell by 57% year-over-year, and the spot premium over contract pricing was 16% in the fourth quarter, compared to over 100% during the first two quarters of this past year. While we believe the current spot market to be unusually weak, we also do not expect to return to the levels a year ago. as the post-COVID through early 2024 time period was marked by unique industry supply chain dislocation that drove transportation premiums well above a typical market. Seasonally adjusted annual sales rates, or SAR, increased over the course of the fourth quarter with industry estimates for all three months above 16 million units, peaking at 16.8 million in December. The increased sales, particularly in the second half of the quarter, however, came through a combination of reduction in dealer inventories and new shipments into dealer lots. Average day sales in dealer inventory ended 2024 at approximately 46 days, down from 58 days at the end of November and between 60 and 90 days throughout the third quarter. While the lower level of year-end inventory would be more promising for replenishment, demand with sustained sales momentum in January saw a decline to 15.6 million units. In spite of these various industry headwinds, Perficient achieved approximately 4% growth in both units delivered and total revenue during the fourth quarter versus the third quarter of 2024. We also continue to strengthen the foundations that will set the stage for future growth and profitability at Perficient, improving adjusted operating ratio by 50 basis points during a period of persistent weak revenues. There's recently been a significant amount of media attention regarding disruption in the auto hauling landscape and speculation about the impact to Perficient and others in our industry. As a matter of policy and to adhere to confidentiality around OEM carrier relationships, Proficient will not comment about specific competitors or customers. That being said, the weak external environment has been challenging for our industry segment. The reported closure of a top five carrier will reduce near-term capacity and likely have widespread impact in the industry. We remain confident that with our service capabilities and the related value proposition, we'll be able to do more for our OEM customers and expect to benefit over time through market share gains. Also, we should note that in addition to some of the reported auto haul disruption in the media, there are several OEMs in the midst of scheduled regional or national bid processes. such that a meaningful amount of new vehicle volume transportation is being decision across the OEM landscape this year. Perficient is positioning itself and competing for incremental market share that should be sustainable and accreted to our portfolio over the long term. With regard to major integration and strategic initiatives, we continue to progress nicely. On the technology front, all of our operating companies are now using Magnus Technologies transportation management system. The data captured in this common system is providing key insights into our customer base, operational efficiency, and profitability metrics. We continue to advance integration efforts to back office systems and tools, including a common accounting platform, a cohesive HRS platform, and cost accounting methodology. For example, particularly in a weaker market, though consistent with our strategic objective We've prioritized company driver efficiency and mix and have a pipeline of backhaul target pursuits identified and being worked in both new vehicle and the secondary market to capture these opportunities. National procurement efforts continue with signed contracts being fully implemented and a broader set of smaller target areas identified to drive ongoing incremental cost savings. That said, we have some inflationary and structural headwinds to offset this as well. with item sets of insurance costs and expanded coverage driving some unfavorable near-term variance in that cost line. I'll now turn it back to Brad to cover some key financial highlights.

Thank you, Rick. I'll start with a few summary statistics. All prior year comparisons are for the combined companies. Operating revenue of $95.1 million in the quarter was up 4% from last quarter but down 15.9% from the prior year. Units delivered of 521,476 represents a 4% increase over the third quarter, but a 4% decline from the fourth quarter of 2023. Revenue per unit excluding fuel surcharge was approximately $169, unchanged from the third quarter, but down approximately 14% from 197 in the fourth quarter of last year. Company deliveries were 37% of revenue in Q4 versus 39% in the third quarter. Sub-haul deliveries, therefore, were 63% of revenue in Q4 versus 61% in the prior quarter. The company had approximately 15.8 million of cash and equivalents on December 31st, 2024. Aggregate debt balances at quarter end were approximately 82.4 million, or net debt of 66.6 million. The increase in net debt from last quarter reflects our financing of fleet growth during the quarter. Total common shares outstanding ended the quarter at 27 million, which is unchanged from that disclosed in our third quarter form 10Q. Looking ahead to the first quarter of 2025, January was challenged by not only a weak SAR month and the typical post-year end seasonal volume weakness, but also significant weather events in many areas of the country, such as the Northeast, New Mexico and Oklahoma, Texas and the Gulf Coast that shut down local operations for days at a time. Wildfires in Southern California also delayed loading and delivery intermittently over a period of a few weeks. As a result, quarter-to-date unit volumes and revenue are lower by 17.5% versus the comparable period of last year. However, We expect to recover much of this shortfall through the end of the quarter based on visibility to the near-term pipeline, such that full quarter revenue and profitability are likely to be similar to the fourth quarter of 2024. Full-year outlook for 2025 remains marked by some large uncertainties in the macro environment, though we do expect sequential momentum as we move into the second quarter and the second half of the year, with expectation of improved full-year 2025 results over 2024. Operator will now take questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Bruce Chan with Stifel. Your line is now open.

Good afternoon, team. This is Matt Mylascon for Bruce Chan. How are you?

Good, Matt. Good, Matt.

Excellent. Just to start off, I know there's likely limited information that you'd like to share or can share at this time, but we're looking at a better sense of the market share that might be at stake here. During the IPO Roadshow, you discussed that both you and Jack Cooper had about low-teens market share. However, it seems, you know, Jack Cooper might have, you know, north of a billion dollars of top line. You know, is there any way, you know, without, you know, maybe going too deep to help us put a finer point on those numbers, you know, at a minimum, maybe from a volume or revenue, you know, perspective, how much opportunity could be headed to the market?

Yeah, we really don't have visibility into their revenue levels. So I don't know that we could be very helpful with that. We know fleet-wise they are larger than us.

Okay. Is that low teen market share figure something that you're comfortable communicating? Yes.

We don't have any updated view of the market relative to what was shared at the investor roadshow, so that would be a reasonable estimate of our understanding at the time.

Fair enough. And then just on, you know, network density, you know, how should we think about prioritization of volume and share here, you know, versus density? Is your approach going to be to take as much, you know, high-quality share as possible and then sort of optimize for density after the fact? Or are we planning to take a more measured approach, you know, to what volumes that you guys take on board?

Yeah, I can speak to that a little bit. So, you know, volume that fits our existing network is very attractive to us, and we're bidding on all of those opportunities. Adjacent volume that ties into, you know, an existing base of driver access terminals is a good growth fit. We are very calculating before we enter an entirely new market and pursue new build traffic. We'd be looking for a concentrated, sustainable level of volume to go into new markets. And then we build around that, both organically and through acquisition. So to answer your question, It's a bit of both right driving density, particularly, you know, with that opportunity in the existing network is is the most attractive right to us. Building in a decent territory is also a pursuit that we have in mind. And they're really not one or the other. We have the bandwidth to do both. One more thoughtful, I would say around the market built that couple

Super helpful. I will hop back in the queue. Thanks.

Thank you.

Our next question comes from the line of Tyler Brown with Raymond James. Your line is now open.

Hey, good afternoon, guys. Good afternoon, Tyler. Hey, so obviously there's a lot going on, lots of dynamic things. I get that you're not going to address it all head on. Let me come at it a little bit differently. If I looked at it in real time, Are you guys seeing incremental spot opportunities in the market today? And is that spot market premium firming up basically in real time?

We are seeing what I would describe as episodic spot opportunities and not, you know, not pervasive spot opportunities in general.

Okay. Okay. So episodic. Okay. If I go back to pro fleet.

So I think pro fleet is running at around 4 million a quarter, let's call it in revenue. Number one, is that basically at a minimum? And two, how would pro fleet react in a capacity challenged market? Could we see that number jump quite a bit if there's a lot of market disruption?

So to answer your first question, yes. What you're seeing is kind of at that minimum level. And we got it last quarter that at minimum levels, we see roughly $4 million, $5 million a quarter, depending upon volume and length of haul where we have those drivers running. If you had dislocation and higher demand for those services, you could see some increase there. But our conservative outlook continues to be that we're going to be at or near contracted minimums as we look to the near term.

Okay. So to be clear, that's kind of implied in the Q1 guidance?

Yes.

Okay. Rick, you mentioned that spot market premium, I think, was 16% of contract, and that was versus, say, 100. You also said that 100 was effectively unusually high. So what would be kind of a normal, as we try to learn the auto hauling industry more, what would be kind of a normal spot premium to contract?

So, you know, Tyler, I think we're also trying to learn what a normal auto haul market looks like. You know, Proficient came into this at a time that was pretty atypical for the market. So to Rick's comment, the spot premium in the you know, 2022, 2023 time period, I think was elevated in a manner that we're not likely to see again in the current environment. But we think we're, you know, we're on the low side of that continuum now. So what we think might be typical is a thought premium that looks a little more like maybe 25 to 40%. And don't take me at exact numbers there, but directionally that would feel a little more like, um, you know, work capacity is in shorter supply.

Okay. That's helpful. Even just the range. Very helpful. And then Amy, just, I know that you have this heavy subcontractor capacity pool, but how much slack capacity do you have in the company owned fleet? And maybe even to that, how much do you have? It's hard. I know it'd be harder to say in the subcontractor piece, but, How much slack capacity do you feel like you have ready at your fingertips?

Yep. So on the company fleet side of things, recall that we invested roughly $30 million of capital in new equipment through the second half of last year. So, you know, we have one of the newer fleets in the industry. Some of that was replenishment. A lot of that was investment for future growth. And those orders were placed in a market that was relatively stronger than the time at which those orders were delivered. So we do have open assets available. We will be hiring to fill those assets and deploying those assets into the market where we see growth come online. We will continue. to invest in truck capacity with growth and have a capital plan to do so again this year. That, of course, is commensurate with opportunity that we see and we'll measure and balance accordingly. On the sub-haul side of things, I would say there is a great deal of capacity available in the marketplace. We have probably 2,500 sub-haul carriers or more across our network that know that are vetted by us that are able to do work on behalf of our various operating companies um and as there's very little broker free in the current environment um you know sub haulers are keen on on work and and providing services so i would say there's a lot of slack capacity currently okay lots of slack capacity so brad last one just any thoughts on capex in 25

And what would be a reasonable number for 24, actually?

So Amy alluded to that somewhat. I mean, I think we, from the time of the IPO through the end of the year, Tyler, we probably had right around just over 30 million of fleet capex. And we're expecting for the current year to be in the 25 to 35 million range as well. And that just... And that will evolve as we see opportunities, but that's our expectation today. Okay, perfect. Excellent. Thank you for the time.

Thanks, Tyler.

Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.

Hey, everyone. Thanks for taking the question. I wanted to ask on one cue a little bit more. I think you said January is kind of trending down or at least quarter dates trending down 17.5%. Then you said you thought you'd make up some of that shortfall and you had some visibility. Could you just talk about what that visibility is and why you think you'll make it up?

Sure, this is Amy. So we get, depending on the OEM and the mode by which the cars are positioned to us, you know, we get visibility anywhere from one to three weeks. For example, import cars on the water, we get somewhat longer visibility. So we do have an idea of what is coming in the near term pipeline, as well as your customer conversations. And generally what we're hearing is a cautious outlook, but some reassurance that volume should continue or should begin to ramp up here, particularly as we move through March and into April. So OEMs are... at least guiding us that, you know, they think volumes will turn up a bit more March into April and then looking to the back half of the year. So as we look at the first quarter, weakness to date near-term pipeline in the locations where we participate, you know, we expect to see some stronger volume coming.

Got it. Okay. And then just A clarification, I think you said you think 1Q will look like 4Q. So should we take that to mean revenue in EBITDA will look like 4Q?

Revenue in OR, I would say, yeah.

Okay. And then, you know, I know you're not giving official guidance here, but should we just assume that the spot business and the premium, you know, of spot over contract, should we assume that really doesn't change? for the next couple quarters? Any reason that it would improve?

There are reasons that it could improve, but I think you're on the right track there. We don't have a crystal ball in our ear and we are coming into the process of reporting both the portion of our spot portfolio and what we are seeing in price premium there. I think we will be able to give you additional information as the market for 2025 becomes clearer. But conservatively, I would say it as you suggested.

Okay. I would add to that just that we're not anticipating a rebound in the spot market, but given the current market dynamics, I said there's probably more opportunity for dislocations where people are taking on new business and they may struggle with that and some of that may come back to the spot market.

Yeah, that makes sense, Rick. Okay, last one for me. You mentioned the press release. Strength of our balance sheet will be a differentiating factor in the marketplace. Can you just talk about, does 2025 feel like there's a lot of new business to win just broadly? How are you thinking about that? And am I thinking about that the right way, just given the challenges that the industry is facing and you're probably in a pretty good position relative?

Yeah, I would think about it in two ways. One is, you know, over the last couple of quarters, we've shared with you our figures on net new contract wins. And actually, to give an update there, since the last earnings call, we have had three net new contract wins, two of which are larger than average size. But the point on bringing that up is Each quarter we have had met new contract wins, but we have been in a weak market. If the market starts to improve, you know, the benefit of those market share gains should become more visible in our results. And we've talked quite a bit, particularly in the last quarter of fall, you know, contract business is stable, profitable business for us. And we want to partner with customers in a way where we show up for them day after day with a high service level and work to flex with their needs and volatility. So we want to win in the contract space. We want to participate in the spot market when opportunities present and we can put capacity up against it. But our main focus is sustainable, accretive market share growth in the contract space. The other way I would think about that, your question is Rick mentioned in his opening comments, there are several open bids that are material in scale. A handful or so of OEMs have done either what I would describe as super regional bids or national bids that become effective anywhere from May of this year to as late as January of 2026. But we have you know, we have gone and positioned ourselves to gain incremental business with those key customers with the strength of, you know, our solar network and offering. And we feel pretty good about how we are positioned to grow coming out of those bids. So as we look at, you know, market share through the year, as those are dispositioned and those new contract terms take effect, you know, we would look to some additional opportunity in the back part of the year from that.

Got it. That's very helpful. Thank you. Pass it on.

Thank you. Our next question comes from the line of Alex Paris with Barrington Research. Your line is now open.

Hi, guys. Thanks for fitting me in and taking my questions. Rick, I want to come at that big question another way. Given your experience in the LTL space, CEO of SIA for 14 years, finished as CEO, but was there for 14 years, I think 14 years as CEO. And you're still the non-executive chairman today. So you lived through the bankruptcy of Yellow Roadways. And I'm wondering if you could maybe create a parallel and even a timeline. And what should we expect first? I would think if the number two player in the auto hauling business exits the business, that volume needs to find a new way to the dealerships. So does it start with brokers? Does it include bids? Whatever parallel you can make to the LTL business, if there is a parallel to make, would be helpful, I think.

Yeah, I think if you look at the cycle and how customers would generally react to a situation like that is they may have a backup contracted carrier and that business would potentially move to that backup carrier right out the gate, and then they would probably put it out to bid over a period of time. So there's probably, you know, there's some immediate impact depending on how you're positioned with the OEMs, with pricing in place, because, you know, this business is a little different than LTO where, you know, you may have a business that's, under contract but you're not getting any shipments and then they can just begin shipping with you. This business is a little different than that just because it's not as much of a network capacity business where you can just pick up more business. You have to have the tractor and trailer and the driver in the right location to be able to service the requirements. you know our solution to that obviously is to near term would be to source with subcontractor capacity and then optimize with you know in source your own drivers there over some period of time and you know we're positioned to react to that those opportunities quickly and then as you probably would expect as as the industry goes through a transition of the incremental business. Some carriers handle it better than others. And so a lot of times the customers, again, will try to re-optimize over a period of time. So I would imagine there's kind of a two-leg impact to the closure would be some immediate sourcing of the business. And then there's probably going to be a second round of opportunities coming at us

Has Proficient seen any impact from that first round yet?

We are seeing some impact. The other thing I would share, Alice, is from our conversations with the OEMs, this situation is broader than just the transportation of the cars. It really is a risk management exercise for the OEMs from their production to the dealer supply chain. So it goes a bit upstream. They are looking to be sure they don't see plant shutdown as a result of disruption in transportation carriers. There's a puzzle with a lot of pieces here that our customers are trying to solve. And some of those things have to be solved in multiple sequences and rounds. And to Rick's point, I think that will, in some sense, play out over time.

I would just comment there is some nearly immediate short-term impact that we feel will offset some of the current market weakness that we're experiencing. And that would be indicative of a kind of a recovery of volumes, particularly in March, from the softness that we've seen year to date.

So is that part of that Q1 forecast? Is there some sort of assumption for some volume pickup from that event?

Yes, it is.

Gotcha. And then, as you both said, then there's that second opportunity once they go through the risk management exercise to take on more volume down the road. Right. And is there any reason that proficient shouldn't get its fair share of this incremental volume that's coming onto the market for the other players, these market share opportunities?

The only caveat I would place on that is Geographic again to the earlier comments of, you know, where our network is strong and where we have existing density. There has not necessarily been a high overlap. With certain competitors. So, you know, I would bet there's a component there, but all else equals proficient as well positioned to participate in and sort of reallocation amongst industry players should that occur.

Gotcha. That's helpful. I appreciate the additional color.

Thank you. Okay, good.

As a reminder, to ask a question at this time, please press star 1-1 on your touch-tone telephone. Our next question is a follow-up from Bruce Chan with Stifel. Your line is now open.

Great. Thanks for allowing us to follow up here. Just curious to hear about how you're thinking about M&A. Is there an appetite for it from your side, especially with your needed capacity requirements? Does the M&A market potentially get more competitive from here? Any color around that would be great.

I guess what I would tell you is we have a pipeline of opportunities that will be a nice fit for us providing synergies and adjacent geographical capacity. I would say, we're obviously managing that or balancing that against other priorities and opportunities that we have. But I would say, we're still active in the marketplace and we would probably expect one to two smaller acquisitions to occur this year.

Great caller. Thank you.

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Rick O'Dell for closing remarks.

All right. Well, thank you so much for your interest in proficient autologistics. We're very excited about the opportunities in the marketplace and confident in our execution capabilities.

This concludes today's conference call. Thank you for your participation. You may now disconnect.