Proficient Auto Logistics Inc (PAL) 2024 Q4 法說會逐字稿

Welcome to the proficient Auto logistics 4th quarter financial information conference call. (Operator Instructions). Please be advised that today's conference is being recorded. would now like to hand the conference over to your speaker today, Bradley Wright Proficient Auto Logistics Inc - Please go ahead.

Good morning, everyone. I'm Brad Wright, Chief Financial Officer of Proficient Auto Logistics. Thank you for joining us on our second-quarter 2024 earnings call.

Under SEC rules, our Form 10K covering the (three- and twelve-months) periods ending December 31, 2024, will include financial statements for both the predecessor accounting entity.

Proficient Auto Transport and the successor entity Porfilio Proficient Auto Logistics Inc. We are not required to provide and the Form 10K will not contain pro forma financial data for the combined companies. However, our earnings release provides comparative summary combined financial information for the 4th quarter and the 12 months ended December 31st for the combined companies. Note that these results are preliminary as our financial audit for 2024 is not yet complete.

Our earnings release can be found under the investor relations section of our website at proficient autoologistics.com. Our 10K wind file can also be found under the investor relations section of our website.

During this call we will be discussing certain forward-looking information. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement in our earnings release describing factors that could cause actual results to differ from those expressed by the forward-looking statements.

Further information can be found in our SEC filings during this call, we may also refer to measures that include adjusted operating income, adjusted operating ratio, EBITDA, and adjusted EBITDA.

Please refer to the portions of our earnings release to provide reconciliations of those profitability measures to GAAP measures such as operating earnings and earnings before income taxes.

Joining me on today's call are Richard O'Dell Proficient - Chairman of the Board, Chief Executive Office 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 4th quarter.

After our prepared remarks, we will open the call to questions during the Q&A. Please limit yourself to one question plus 1 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 4th quarter and some trends that provide insight into our expectations as we enter 2025. The macro auto industry environment in the 4th quarter was largely a continuation of the weakness we described in the 3rd 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 4th 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 buys 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 year. Or 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 a unique industry supply chain dislocation that drove transportation premiums well above a typical market.

Seasonally adjusted annual sales rates for 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 and 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 was the same stiff with sustained sales momentum in January. A declined to $15.6 million units.

In spite of these various industry headwinds, proficient achieved approximately 4% growth in both units delivered and total revenue during the fourth quarter versus the 3rd quarter of 2024. We also continue to strengthen the foundations that will set the stage for future growth and profitability and proficient.

Improving adjusted operating ratio by 50 basis points during a period of persistent I believe weak revenues.

There's recently been a significant amount of media attention regarding disruption in the auto hauling landscape and speculation about the impact of proficient and others in our industry.

As a matter of policy and to adhere to confidential reality 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.

Reported closure of a top 5 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 OM 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 that a meaningful amount of new vehicle volume transportation is being decisioned across the OEM landscape this year.

Proficient 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 have 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 items such as insurance costs and expanded coverage, driving some unfavourable near-term variants in that cost line. 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 for 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 Form10.

Looking ahead to the first quarter of 2025, January was challenged by not only a weak 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.

The 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 the shortfall to 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 4th 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.

Thank you.

Our first question comes from the line of Bruce Chan. Your line is now open.

Excellent. Just to start off, limited information that you'd like to share or can share at this time, but we are looking to get 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 tens market share.

However, it seems, Jack Cooper might have, north of a billion dollars of top line. Is there any way, without, maybe going too deep to help us put a finer point on those numbers, at a minimum, maybe from a volume or revenue, perspective, how much opportunity could be headed to the market?

If 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, so.

Okay, that is that low teen market share figure something that you're comfortable communicating.

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, network density, how should we think about prioritization of volume and share here, versus density? Is your approach going to be to take as much, 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, 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, an existing base of driver's assets terminals, is a good growth fit.

We are very calculating before we enter an entirely new market and pursue new build traffic we could 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 drives density, particularly, with that ha opportunity in the existing network is the most attractive right to us, building in adjacent 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, we're more thoughtful, I would say around new market build if that's something.

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

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

Hey good afternoon, guys.

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.

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 pervasive spot opportunities in general.

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, you know 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 call where we have those drivers running,

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.

Okay, so to be clear, that's kind of implied in the 11 guidance.

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 proficient came into this at a time that was pretty atypical.

So, to Rick's comments, the premium in the, 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 are on the low side of that continuum now so what we think might be typical is a thought premium. 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 you know where capacity is in shorter supply.

Okay, that's helpful. Even just the range very helpful and then and 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 be harder to say in the subcontractor piece, but how much slack capacity do you feel like you have ready at your fingertips?

Yes, 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 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 you know 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 the. 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 you know with opportunity that we see, and we will measure and balance accordingly on the sub hall side of things, I would say there is a great deal of capacity available in the marketplace we have probably 2500 sub hall carriers or more across our network.

That you know that are vetted by us that are able to do work on behalf of our various operating companies, and as there's very little broker freight in the current environment, the callers are keen on work and. And providing services, so I would say there's a lot of slot capacity currently.

Okay, lots of slot capacity. So, Brad, last one, just any thoughts on cap X 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 are expecting for the current year to be in the $25million to $35 million range as well and you know that just, and that will evolve as we see opportunities, but that's our expectation today.

Okay perfect excellent thank you for the time.

Our next question comes from the line of Ryan Merkel with William Blair Your line is still 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 could 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're you'll make it up?

Sure, so we get depending on the OEM and the mode by which the cars are dispositioned to us you know we get visibility of anywhere from 1 to 3 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 pipelines as well as.

Conversations and generally what we are hearing is you know a cautious outlook but some reassurance that you know 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, if we look at the first quarter weakness to date near term pipeline in the locations where we participate, we expect to see some stronger volume coming.

Got it. Okay. And then just a clarification, I think you said, you think one will look like 4Q. So that should we take that to mean revenue and Ida.

And then you know you are not giving official guidance here, but should we just assume that the spot business and the premium you know of spot over contracts 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 are on the right track there, we don't have a crystal ball there either, and we are, coming into the practice of reporting both the portion of our spot portfolio and what we are seeing in price premium there so. Sequentially, I think we will be able to give you additional information as the market for 2025 becomes clearer, but conservatively, I think, I would say it as you suggested.

I would add to that just that we're not anticipating a rebound in the spot market, but given, current market dynamics, I said there's probably more opportunities 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 the 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 are probably in a pretty good position relative.

Yeah, I would think about it in two ways. One is, over the last couple of quarters we have 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 3 net new contracts.

Two of which are larger than average size, but the point on bringing that up is each quarter we have had net new contract win but we have been in a weak market. If the market starts to improve, the benefit of those market share gains should become more visible in our results.

And we have talked quite a bit, particularly in the last 4 call, 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 start level and.

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 presents and we can put capacity up against it, but our main focus is, sustainable, the creative market share growth in the contract.

I think about that your question is Rick mentioned in 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.

We have gone and positioned ourselves to gain incremental business with those key customers with the strength of, our polar 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, market share through the year, as those are dispositioned and those new contract terms take effect, we would look to some additional opportunity in the back part of the year from that.

Thank you. Our next question comes from the line of Alex Paris with Barrington Research. Your line is not 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 or finished as 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 am wondering if you could maybe create a parallel, and even, a timeline and what should we expect first. I would think if the number 2 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 You know 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 is probably, there's some immediate impact depending on how your position 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 is under contract but you are not getting any shipments and you know then they can just begin shipping with you or this business is a little different than that just because you know we don't have as it's not as much of a network capacity business where you could just pick up more business that you have to have tractor trailer and the driver in the right location to be able to service the requirements so you know our solution to that obviously is to.

Near term would be to source with subcontractor capacity and then optimize with, 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 is kind of a two-leg impact, to the closure would be, some immediate sourcing of the business and then there is 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, Alex is conversations with the OEM 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.

We can't shut down as a result of disruption and transportation carriers and so there's a puzzle with a lot of pieces here that our customers are trying to solve, and you know some of those things have to be solved in in multiple sequences and rounds and to Rick's point I think that will in some sense play out over time.

But there's some near I would just comment there is some. Nearly immediate short-term impacts 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 Volumes. Particularly in March from the softness that we've seen year to today.

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

Yes it is.

Got you, and then, as you both said that then there is that second opportunity once they go through the risk, management exercise to take on more volume down the road.

And is there any reason that 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, I would, that there's a component there but all else equal proficient is well positioned, to participate in sort of reallocation amongst industry players should that occur.

Got you that's helpful. I appreciate the additional color.

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 are 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.

Yeah, I guess what I would tell you is I mean we have a pipeline of opportunities that will be a nice fit for us providing synergies and adjacent geo geographical capacity.

I would say obviously managing that or balancing that against other priorities and opportunities that we have. But I would say we are still active in the marketplace, and we would probably expect 1 to 2 smaller acquisitions to occur this year.

Thank you and I am currently showing no further questions at this time. I would like to hand the call back over to Richard O'Dell for closing remarks.

All right, well, thank you so much for your interest in proficient ado logistics. We are 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.