Q2 2024 Proficient Auto Logistics Inc Earnings Call

Speaker Change: Good day and thank you for standing by.

Operator: Order 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: Welcome to the Proficient Auto Logistics second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Operator: To withdraw your question, please press Star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brad Wright, Chief Financial Officer.

Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brad Wright, Chief Financial Officer. Please go ahead.

Operator: Please go ahead. Thank you. Thank you. Thank you.

Brad Wright: Good morning, everyone. I'm Brad Wright, the Chief Financial Officer of Proficient Auto Logistics. Thank you for joining us on our second quarter 2024 earnings call. Under SEC rules, our Form 10-Q, which we expect to file early next week, covering the three and six-month periods ending June 30, 2024, includes financial statements for both the predecessor accounting entity, Proficient Auto Transport, and the successor entity, Proficient Auto Logistics, Inc. We are not required to provide, and the Form 10-Q will not contain pro forma financial data for the second quarter.

Speaker Change: 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.

Brad Wright: However, our earnings release provides comparative summary, unaudited, combined financial information for the second quarter for the five founding companies. Our earnings release can be found under the Investor Relations section of our website at ProficientAutoLogistics.com. Our 10-Q, when filed, 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.

Speaker Change: Under SEC rules, our Form 10-Q , which we expect to file early next week,

Speaker Change: covering three and six-month periods ending June 30, 2024, include financial statements for both the predecessor accounting entity, Proficient Auto Transport, and the successor entity, Proficient Auto Logistics, Inc.

Speaker Change: We are not required to provide, and the Form 10-Q will not contain, pro forma financial data for the second quarter. However, our earnings release provides comparative, summary, unaudited, combined financial information for the second quarter for the five founding companies.

Speaker Change: Our earnings release can be found under the Investor Relations section of our website at ProficientAutoLogistics.com. Our 10-Q when filed can also be found under the Investor Relations section of our website.

Speaker Change: 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.

Brad Wright: I encourage you to review the cautionary statement in our earnings release describing factors that could cause actual results to differ from those expressed in our forward-looking statements. Further information can be found in our SEC filings. During this call, we also may be referring to measures that include Adjusted Operating Income, EBITDA, and Adjusted EBITDA. Please refer to the portions of our earnings release that provide reconciliations of those profitability measures to gap measures such as operating earnings and earnings before income taxes or net income. Joining me on today's call are Rick O'Dell, Proficient's Chairman and Chief Executive Officer, and Randy Beggs, our President and Chief Operating Officer.

Speaker Change: I encourage you to review the Cautionary Statement in our Earnings Release describing factors that could cause actual results to differ from those expressed in our Forward-Looking Statements.

Speaker Change: Further information can be found in our SEC filings.

Speaker Change: During this call, we also may be

Speaker Change: Adjusted Operating Income, EBITDA, and Adjusted EBITDA. Please refer to the portions of our earnings release that provide reconciliations of those profitability measures to GAAP measures such as operating earnings and earnings before income taxes or net income.

Speaker Change: Joining me on today's call are Rick O'Dell, Proficient's Chairman and Chief Executive Officer, and Randy Beggs, our President and Chief Operating Officer.

Brad Wright: We will provide a company update as well as an overview of the company's combined results for the second 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 O'Dell, who will provide the company update.

Speaker Change: We will provide a company update as well as an overview of the company's combined results for the second quarter. After our prepared remarks, we will open the call to questions.

Speaker Change: 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.

Rick O'Dell: Thank you, Brad, and good morning, everyone. I'll start out with an overview of our operations during the second quarter and some trends that provide insight into our expectations for the back half of 2024. I'll follow that with some exciting news about a strategic addition to Proficient that we expect to close as early as next week. We believe that this is exactly the type of acquisition described to our investors during the IPO process. It is large enough to meaningfully increase our scale.

Speaker Change: Now, I would like to introduce Rick O'Dell, who will provide the company update.

Rick O'Dell: Thank you, Brad, and good morning, everyone.

Rick O'Dell: I'll start out with an overview of our operations during the second quarter and some trends that provide insight into our expectations for the back half of 2024. I'll follow that with some exciting news about a strategic addition to Proficient that we expect to close as early as next week.

Rick O'Dell: We believe that this is exactly the type of addition described to our investors during the IPO process. It is large enough to meaningfully increase our scale.

Rick O'Dell: It is geographically well-placed to increase our density in the Western United States and brings along best-in-class management and operating profitability, first as it relates to the second quarter. As we discussed in our last earnings call, second quarter unit volumes and related revenue started off very strong in April and May, with year-over-year revenue up approximately 11% for that two-month period. June, however, slowed considerably with unit volume slightly negative versus the same month of 2023, down less than 1%, and revenue for the month was down approximately 8% versus the prior year.

Rick O'Dell: is geographically well-placed to increase our density in the western United States and brings along best-in-class management and operating profitability.

Rick O'Dell: That trend has continued in July with flat unit volumes versus the same month of 2023 and total revenue off approximately 11%. There is a seasonal aspect to July as many OEMs elect to close plants for the week of July the 4th, and depending on the environment, some even take the opportunity to shutter plants for a two-week period.

Rick O'Dell: First, as it relates to the second quarter.

Rick O'Dell: As we discussed in our last earnings call, second quarter unit volumes and related revenues started off very strong in April and May, with year-over-year revenue up approximately 11% for that two-month period.

Rick O'Dell: June , however, slowed considerably with unit volume slightly negative versus the same month of 2023, down less than 1%, and revenue for the month was down approximately 8% versus the prior year.

Rick O'Dell: That trend has continued in July with flat unit volumes versus the same month of 2023.

Rick O'Dell: total revenue off approximately 11%.

Rick O'Dell: There is a seasonal aspect to July , as many OEMs elect to close plants for the week of July the 4th, and depending on the environment, some even take the opportunity to shutter the plants for a two-week period.

Rick O'Dell: This year, you can add to that the CDK global software outage at the end of June that slows sales volumes during a typically strong holiday week. In keeping with the trend we're observing, many of the major auto manufacturers have used their second-quarter earnings reports to temper second-half volume guidance in the face of weaker-than-expected volumes last quarter. References to high inventories at dealership lots, declining profitability metrics, and planned cost-cutting measures were a common theme.

Rick O'Dell: This year you can add to that the CDK global software outage at the end of June that slows sales volumes during a typically strong holiday week.

Rick O'Dell: In keeping with the trend we're observing, many of the major auto manufacturers have used their second quarter earnings reports to temper second-half volume guidance in the face of weaker-than-expected volumes last quarter.

Rick O'Dell: References to high inventories at dealership lots, declining profitability metrics, and planned cost-cutting measures were a common theme. We're mindful of guidance from our primary customers as we assess our projections for the remainder of the year, and Brad will provide some additional detail in that regard with his comments.

Rick O'Dell: We're mindful of guidance from our primary customers as we assess our projections for the remainder of the year, and Brad will provide some additional detail in that regard at this conference. A primary means of countering some current industry headwinds will come in the form of increasing market share. We noted in our previous earnings call the addition of nine net new contracts and 24 through the end of May. Additionally, an additional five new contracts were acquired during June and July. In addition, there were three contracts renewed with a significant expansion of allocated lanes.

Brad Wright: Our primary means of countering some current industry headwinds will come in the form of increasing market share. We noted in our previous earnings call the addition of nine net new contracts in 2024 through the end of May. An additional five new contracts were acquired during June and July .

Brad Wright: In addition, there were three contracts renewed with significant expansion of allocated lanes.

Brad Wright: The precise impact on the revenue of these additions is dependent on the volume ultimately generated by the respective OEMs, but our coverage network and quality service is clearly being well received in the marketplace.

Rick O'Dell: The precise impact on the revenue of these additions is dependent on the volume ultimately generated by the respective OEMs, but our coverage network and quality service are clearly being well received in the marketplace. Now, a little color on our strategic acquisition. We're very excited to announce this morning the anticipated closing of our acquisition of Auto Transport Group. We've been extremely impressed with the team at ATG and the high-quality business they've built over the last 25 years.

Rick O'Dell: And we're enthusiastic about the prospect of adding them to the existing foundation of Proficient Auto Logistics. Just to give you an idea of the scale they will add to our platform, ATG controls a fleet of over 100 vehicles, with approximately 80% of those being company owned. Equipment has an average age of about 5.5 years, which is consistent with the existing fleet at Proficient. The employee base is approximately 80 people, with roughly 75% being drivers.

Rick O'Dell: ATG has delivered approximately 200,000 autos annually in recent years and is expected to add about 8% to our revenue growth over the next year. They operate at margins consistent with the best of our founding companies and are expected to be immediately accretive to earnings per share. You'll be hearing more about this addition next quarter following the official closing of the transaction. I'll now turn it back over to Brad to cover some key financial highlights.

Speaker Change: Now a little color on our strategic acquisition. We're very excited to announce this morning the anticipated closing of our Acquisition Auto Transport Group.

Speaker Change: We've been extremely impressed with the team at ATG and the high quality business they've built over the last 25 years and we're enthusiastic about the prospect of adding them to the existing foundation of Proficient Auto Logistics.

Speaker Change: Just to give you an idea of the scale they will add to our platform, ATG controls a fleet of over 100 vehicles with approximately 80% of those being company-owned. The equipment has an average age of about 5.5 years, which is consistent with the existing fleet at Proficient.

Speaker Change: Employee base is approximately 80 personnel with roughly 75% being drivers.

Speaker Change: ATG has delivered approximately 200,000 autos annually in recent years and is expected to add about 8% to our revenue growth over the next year.

Speaker Change: They operate at margins consistent with the best of our founding companies and are expected to be immediately accreted to earnings per share. You'll be hearing more about this addition next quarter following the official closing of the transaction.

Speaker Change: I'll now turn it back over to Brad to cover some key financial highlights.

Brad Wright: Thank you, Rick. I'll start by reiterating a few of the highlights that we called out in the earnings press release earlier this morning. All financial references are for the Combined Founding Company. Operating revenue of 106.6 million in the quarter was an increase of 5.8%. The Adjusted Operating Ratio improved from 92.7% in the second quarter of 2023 to 91.8% in 2024. This was also an improvement from 93.2% in the first quarter of this year.

Brad Wright: Thank you, Rick. I'll start by reiterating a few of the highlights that we called out in the earnings press release earlier this morning. All financial references are for the combined founding companies.

Brad Wright: Operating Revenue of $106.6 million in the quarter was an increase of 5.8%.

Speaker Change: Adjusted Operating Ratio improved from 92.7% in the second quarter of 2023 to 91.8% in 2024. This was also an improvement from 93.2% in the first quarter of this year.

Brad Wright: Adjusted operating income was $8.7 million in the most recent quarter, up 19.4% from $7.3 million in the second quarter last year. The adjusted profitability measures add back the impact of stock compensation expense resulting from RSU grants made concurrent with our IPO, which are expensed over the vesting period, in most cases, three years. The other expense added back in these measures is amortization of intangible assets resulting from the acquisitions of a founding company.

Speaker Change: Adjusted operating income was $8.7 million in the most recent quarter, up 19.4% from $7.3 million in the second quarter last year.

Speaker Change: The adjusted profitability measures add back the impact of stock compensation expense resulting from RSU grants made concurrent with our IPO, which are expensed over the vesting period, in most cases, three years.

Speaker Change: The other expense added back in these measures is amortization of intangible assets resulting from the acquisitions of the founding companies.

Brad Wright: Amortizable intangibles consist primarily of trade names and Customer Relationships, which you can expect to add approximately $2 million per quarter to operating expenses. These are both non-cash expense items that are removed from our operating metrics to provide a clearer picture of the progress that we're achieving in our Integration and Synergy Initiatives. Following up on Rick's comments about the environment, we came into the current year modeling approximately 8% revenue growth for the full year, with about equal parts coming from volume and price.

Speaker Change: Amortizable intangibles consist primarily of trade names and customer relationships, which you can expect to add approximately two million per quarter to operating expenses.

Speaker Change: These are both non-cash expense items that are removed from our operating metrics to provide a clearer picture of the progress that we're achieving in our integration and synergy initiatives.

Speaker Change: Following up to Rex's comments about the environment, we came into the current year modeling approximately 8% revenue growth for the full year with about equal parts coming from volume and price.

Brad Wright: The recent trends experienced in June and July have prompted us to reassess the outlook for the second half of 2024. We're now expecting sequential quarter revenue growth in the mid single digits for the third quarter with an adjusted operating ratio that is consistent with last quarter. The fourth quarter typically exhibits seasonal strength.

Speaker Change: The recent trends experienced in June and July prompted us to reassess the outlook for the second half of 2024. We're now expecting sequential quarter revenue growth in the mid-single digits for the third quarter with adjusted operating ratio that is consistent with last quarter.

Brad Wright: That, along with the full quarter of including ATG in our results, we are expecting sequential quarter revenue growth of low double digits in the fourth quarter. The Adjusted Operating Ratio is expected to improve by 50 to 100 basis points sequentially in the fourth quarter. As relates to the balance sheet, the company had approximately $36 million of cash and equivalents on June 30, 2024. Aggregate debt balances at quarter end were approximately $55 million, for a net debt of $19 million.

Speaker Change: The fourth quarter typically exhibits seasonal strength that along with a full quarter of including ATG in our results We are expecting sequential quarter revenue growth of low double digits in the fourth quarter

Speaker Change: The adjusted operating ratio is expected to improve by 50 to 100 basis points sequentially in the fourth quarter.

Speaker Change: As relates to the balance sheet, the company had approximately $36 million of cash in equivalence on June 30, 2024. Aggregate debt balances at quarter end were approximately $55 million for net debt of $19 million.

Operator: Our fleet plan calls for approximately $20 million of growth capital expenditures during the remainder of 2024, the vast majority of which will be financed at market rates through existing lender relationships. Finally, the ATG acquisition will be done at a multiple and a mix of stock and cash, roughly in line with the acquisitions of the five founding companies. Our approach to financing equipment CapEx and a portion of the ATG purchase will leave plenty of liquidity available for other opportunities, whether operational or strategic, and leverage will remain below two times EBIT.

Speaker Change: Our fleet plan calls for approximately $20 million of growth capex during the remainder of 2024, the vast majority of which will be financed at market rates through existing lender relationships.

Speaker Change: Finally, the ATG acquisition will be done at a multiple and a mix of stock and cash, roughly in line with the acquisitions of the five founding companies.

Speaker Change: Our approach to financing equipment CapEx and a portion of the ATG purchase will leave plenty of liquidity available for other opportunities, whether operational or strategic, and leverage will remain below 2x EBITDA.

Operator: Total common shares outstanding are currently 26.1 million. As disclosed in a Form 8K filed earlier this morning, we expect to issue approximately 1 million shares in connection with the acquisition of ATGM. Operator, we will now take questions.

Speaker Change: Total common shares outstanding are in a form 8k filed earlier this morning. We expect to issue approximately 1 million shares in connection with the acquisition of ATG.

Operator: Thank you. As a reminder, to ask a question at this time, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bruce Chan with Stiefel. Your line is now open.

Speaker Change: Operator, we will now take questions.

Speaker Change: Thank you. As a reminder, to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Bruce Chan with Stiefel. Your line is now open.

Bruce Chan: Thank you, operator, and good morning guys. We have some exciting results here.

Bruce Chan: Thank you, operator, and good morning, guys. Some exciting results here. Certainly appreciate the time.

Bruce Chan: Maybe just to start, I wanted to follow up on your comment about the monthly revenue trends.

Bruce Chan: I certainly appreciate the time. Maybe just to start, I wanted to follow up on your comments about the monthly revenue trends. Certainly understand some of the puts and takes here with regard to the lower, you know, auto volumes and OEM activities, but it looks like maybe there was some associated and, you know, more pronounced yield impact there too. Can you maybe just, you know, walk us through what those headwinds were to yield that kind of came on top of those volume pressures?

Speaker Change: certainly understand some of the puts and takes here with regard to the lower you know auto volumes and OEM activities but

Speaker Change: It looks like maybe there was some associated and, you know, more pronounced yield impact there too. Can you maybe just, you know, walk us through what those headwinds were to the yield that kind of came on top of those volume pressures?

Brad Wright: So it's kind of a combination with the volume in our industry. Spot moves tend to be when people have backlogs, and they come at premium rates. And so when you have a softer volume environment, yes, we have less of those kind of spot moves that are at a premium. So that was really the impact. We have our numbers on, if you exclude some of our dedicated fleet. Revenue per unit was actually up about 3% on our contractual business.

Speaker Change: So it's kind of a combination with the volume, you know, in our industry.

Speaker Change: Spot moves tend to be when people have backlogs and they come at premium rates, and so when you have a softer volume environment, yes, we have less of those kind of spot moves that are at a premium.

Speaker Change: So that was really the impact.

Speaker Change: We have our numbers on if you exclude

Speaker Change: Excludes some of our dedicated fleet.

Speaker Change: The revenue per unit was actually up about 3% on our contractual business, so.

Bruce Chan: Okay, that's super helpful. And then, you know, turning to the operating ratio, certainly a much faster OR improvement than we'd been modeling. And just, you know, maybe you want to dive into that a little bit. What are you seeing there as far as, you know, levers? I know you talked about some of the synergies, but, you know, can you maybe just give us some color on what opportunities you have on the efficiency side, especially as you start to think about a little bit of the top line pressure for the next, you know, few months here?

Speaker Change: Okay that's super helpful and then just you know turning to the

Speaker Change: you know, operating ratio.

Speaker Change: certainly a much faster OR improvement than you know we've been modeling and just you know maybe you want to dive into that a little bit.

Speaker Change: What are you seeing there as far as, you know, levers? I know you talked about some of the synergies, but maybe just give us some color on what opportunities you have on the efficiency side, especially, you know, as you start to think about a little bit of the top line pressure for the next, you know, few months here.

Brad Wright: We still have a high degree of confidence in our key synergy and operating improvement initiatives. But to be honest with you, those really weren't in place during this quarter.

Speaker Change: Yeah, we still have a high degree of confidence in our key synergy and operating improvement initiatives. To be honest with you, those really weren't in place during this quarter.

Brad Wright: We have a little bit of benefit from purchasing Synergies on fuel, but we've only had that for about one month in the quarter. It was about $300,000. And then it's really more from implementing best practices and seeing good cooperation between our operating companies. You know, in terms of sharing freight and minimizing backhaul opportunities, which were the ones we anticipated being able to move most quickly. Okay, that's great. And then maybe, I was just going to say, the major operating improvements are still ahead of us.

Speaker Change: We have a little bit of benefit from purchasing Synergies on fuel, but we've only had that for about one month in the quarter. It was about $300,000. And then it's really more from implementing best practices and seeing a good cooperation between our operating companies.

Speaker Change: you know, in terms of sharing freight and minimizing backhaul opportunities, which were the ones we anticipated being able to move most quickly on.

Speaker Change: Okay, that's great.

Speaker Change: Yeah.

Speaker Change: I was just going to say, the major operating improvements are still ahead of us.

Bruce Chan: Got it. And then just one more quick one, and I'll hop back in queue, but as far as that IT process is concerned, are we now fully integrated at this point with all the opcodes?

Speaker Change: Got it. And then just one more quick one and I'll hop back in queue, but as far as that IT process is concerned, are we now fully integrated at this point with all the opcos?

Brad Wright: So we have four of the five implemented, and we've actually intentionally delayed the fifth of the companies to kind of simplify the integration with the implementation of the new accounting system, but we're very much on track. Thank you all for your implementations.

Speaker Change: So we have four of the five implemented and we've actually intentionally delayed the fifth of the companies to kind of simplify the integration with the implementation of the new accounting system.

Speaker Change: But we're very much on track.

Brad Wright: Bruce, the accounting system, and the fifth company on the TMS are scheduled to happen on October 1st.

Speaker Change: of the technology implementations.

Speaker Change: Bruce, the accounting system and the fifth company on the TMS are scheduled to happen on October 1st.

Bruce Chan: Proficient Proficient. I appreciate that color.

Operator: Thank you. Our next question comes from the line of Ryan Merkle with William Blair. Your line is now open.

Bruce Chan: Okay, great. Appreciate that, Collar.

Speaker Change: Thank you. Our next question comes from the line of Ryan Merkle with William Blair. Your line is now open.

Ryan Merkle: Hey, good morning, and thanks for taking the question. My first question is just on the revenue guide for 3Q. I think you said it up mid-single digits sequentially. Can you give us the assumptions you're making about what you'll see in August and September? Did you sort of extrapolate what you saw in July, or are you thinking there might be a bit of improvement?

Ryan Merkle: Hey, good morning and thanks for taking the question. My first question is just on the revenue guide for 3Q. I think you said up mid-single digits sequentially.

Ryan Merkle: Can you, you know, give us the assumptions you're making about what you'll see in August and September ? Did you sort of extrapolate what you saw in July , or are you thinking there might be a bit of improvement?

Brad Wright: I think there's going to be improvement in the last two months of the quarter, Ryan, because, you know, as Rick mentioned in his comments, you had some plant closures in July. We got off to a slow start with some of the issues around the CDK outage. I just think there were a couple of unique factors that probably exacerbated lower volumes in July, and so we are expecting a little bit of an uptick, which is how we get to still an up quarter over quarter, but the bigger increases are to come in Q4.

Ryan Merkle: I think there's going to be improvement in the last two months of the quarter, Ryan, because, you know, as Rick mentioned in his comments, you know, you had some plant closures in July . We got off to a slow start with some of the, you know...

Speaker Change: the issues around the CDK outage. I just think there were there were a couple of unique factors that probably exacerbated lower volumes in July and so we are expecting a little bit of an uptick.

Speaker Change: which is how we get to still an up quarter over quarter, but the bigger increases are to come in Q4, I believe.

Brad Wright: And then to follow up on that, the sequential increase in Q4 sequentially, you mentioned seasonality, is that the only assumption, or are there any assumptions on better volumes or better prices?

Speaker Change: And then to follow up on that, the Q4 increase sequentially, you mentioned seasonality, is that the only assumption or is there any assumptions on better volumes or better pricing?

Brad Wright: It's a combination of seasonality and, you know, I mentioned that we also expect that we'll have a full quarter of ATG revenue in there, and that's part of the increase as well.

Speaker Change: With combination of seasonality and you know I mentioned that we also expect that we'll have a full quarter of ATG revenue in there and that's part of the increase as well.

Ryan Merkle: Got it. Good point. Okay.

Speaker Change: Got it, good point, okay. And then you mentioned the CDK issue. Can you quantify that? Was that an impact in the quarter and is it better now? Just a little color on that would be helpful.

Brad Wright: And then you mentioned that CDK issue. Can you quantify that? Was that an impact in the quarter? And is it better now? Just a little color on that would be helpful.

Brad Wright: I think the short answer is no. We can't really quantify that. But in kind of reading between the lines when you listen to the OEMs' earnings related, there were multiple references to excess inventory, or high inventory, anyway, on dealership lots, and I think that was part of the issue. And that just kind of backs everything up.

Speaker Change: I think

Speaker Change: Short answer is no, we can't really quantify that. But in kind of reading between the lines when you listen to the OEM's earnings releases.

Speaker Change: There were multiple references to excess inventory, or high inventory anyway, on dealership lots and I think that was part of the issue. And that just kind of backs everything up.

Ryan Merkle: Yeah, that makes sense. All right. Thanks for the time. Pass it on. Thank you. As a reminder, to ask a question at this time...

Operator: Thank you. As a reminder, to ask a question at this time, please press star 1 1 on your touchtone telephone. Our next question comes from the line of Tyler Brown with Raymond James. Your line is now open.

Speaker Change: Yeah, makes sense. All right, thanks for the time. Pass it on.

Speaker Change: Thank you. As a reminder to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from the line of Tyler Brown with Raymond James. Your line is now open.

Tyler Brown: Hey, good morning, guys.

Tyler Brown: Yes. Oh, sorry, sorry. Hey, hey, Brad, I just want to, before we get into the Q&A, I just want to level set. So, just given the timing of the IPO, you guys are only providing kind of high-level metrics here in Q2, because the Q's details will really be on the predecessor, is that right? But by the time we report Q3, we should be getting a full P&L cash flow balance sheet operating metrics with the release, is that correct?

Tyler Brown: Can you hear me?

Tyler Brown: Yeah.

Speaker Change: Oh, sorry, sorry.

Speaker Change: Hey, hey, just, Brad, I just want to, before we get into the Q&A, I just want to level set. So, just given the timing of the IPO, you guys are only providing kind of high-level metrics here in Q2.

Speaker Change: Because the Q's details will be really on the predecessor, is that right? But by the time we report Q3, we should be getting a full P&L cash flow balance sheet operating metrics with the release, is that correct?

Brad Wright: That's right, Tyler. What you're going to see in the queue we filed probably on Tuesday next week is you're going to get the combined quarter-end balance sheet. You'll have a full gap balance sheet. But what you won't have is a full quarter of operating results because it will be a combination.

Speaker Change: That's right, Tyler. What you're going to see in the queue we filed probably Tuesday next week.

Speaker Change: is you're going to get the combined...

Speaker Change: Order in balance sheet it you'll have a full gap balance sheet

Speaker Change: What you won't have is a full quarter of operating results because it will be a combination of the predecessor company up until the IPO, and then everybody from the IPO to the end of the quarter. So it's a little bit of a confusing presentation, frankly.

Brad Wright: Right, but by Q3, things should kind of level out for everybody out there. Okay, that's right. Very helpful. Okay.

Speaker Change: Right, but by Q3 things should kind of level out.

Speaker Change: for everybody out there. Okay. That's right. Very helpful. Okay.

Speaker Change: And then Rick, so can you talk a little bit more about the ATG transaction? How did that deal come together? Had you guys been working on that one for a while? Or did it actually spawn given all of the interest around the IPO?

Brad Wright: I mean, they were kind of one of the funnel opportunities, and then they were actually marketing the company. So you know, caused us to want to move quickly because it was such a great fit. Okay, okay, that's so we obviously have a pipeline of opportunities. But again, this one was such a good fit and such a great management team.

Speaker Change: I mean they were kind of one of the funnel opportunities and then they were actually marketing the company so you know caused us to

Speaker Change: Want to move quickly because it's such a great fit.

Speaker Change: Okay, okay, that's so we can we have a we obviously have a pipeline of opportunities

Speaker Change: But again, this one was such a good fit and such a great management team.

Brad Wright: Operating very well. So, as you know, one of my key priorities when you make an acquisition is first priority: don't mess it up. They're operating well; we kind of leave them alone. So, you know, it's not going to require a lot for us to absorb them into our network. We'll continue to advance our key priorities, and it just enhances our coverage area and the quality of our crew. Okay, okay. Perfect. Yeah, and I would assume this one will also move on to the final.

Speaker Change: operating very well so as you know one of my key priorities when you make an acquisition is first priority is don't mess it up they're operating well kind of leave them alone so you know it it's not going to require a lot for us to to absorb them into our network

Speaker Change: We'll continue to advance our key priorities and it just enhances our coverage area.

Speaker Change: and the quality of our crew. Okay. Okay, perfect. Yeah, and I would assume this one will also move on to the TMS.

Brad Wright: They have a very robust technology platform, but we'd like to have them on the same platform that we're using for visibility, and they're clearly capable of...

Speaker Change: Yes, they will.

Speaker Change: Okay

Speaker Change: They have a very robust technology platform, but we'd like to have them on the same platform that we're using for visibility.

Brad Wright: That a lot on our side too, so that's good.

Speaker Change: Right and they're clearly capable of managing the implementation

Brad Wright: Okay, and then maybe kind of to this whole point about visibility in the TMS and just Randy, any update on backhaul, just maybe where you guys were in the quarter from an empty mile perspective, just how quickly do you think you can make some improvements on filling up some of those backhauls?

Speaker Change: Without a lot on our side too, so

Speaker Change: That's what

Randy Beggs: Okay and then maybe kind of to this whole point about visibility in the TMS and just Randy any update on backhaul just maybe where where were you guys in the quarter from an empty mile perspective just how quickly do you think you can make some improvements on filling up some of those backhauls?

Randy Beggs: Yeah, so, uh, just the last few weeks, we were able to reduce empty miles by 352. I don't have the miles in front of me to give you the exact miles on it, but it was 352 backhauls that aided in creating Death City and reducing it to miles and enhancing, obviously, the revenue on those trucks.

Randy Beggs: Yeah, so just the last four weeks, we were able to...

Randy Beggs: to do 352 numbers.

Randy Beggs: backhauls that reduced empty miles. I don't have the miles in front of me to give you the exact miles on it, but it was 352 backhauls that aided in creating density and reducing empty miles.

Randy Beggs: We have the targeted lanes, but quite frankly, we're just doing it manually right now. We're still working on putting our framework around it so we can, you know, better tie in sales incentives and achieve some of our objectives and be dynamic, whereas if we win new business that creates new empty lanes, then we'll be looking to fill those as opposed to kind of a more static. Targeted target that we have now that we're doing manual

Randy Beggs: Enhancing, obviously, the revenue on those trucks.

Randy Beggs: We have the targeted lanes, but quite frankly, we're just doing, we're managing it manually right now. We're still working on putting our framework around it so we can, you know, better tie in sales incentives.

Randy Beggs: and achieve some of our objectives and be dynamic, whereas if we win new business that creates new empty lanes, then we'll be looking to fill those as opposed to a more static.

Tyler Brown: Okay, okay, so more on that later. Correct. Absolutely. Okay, just my last one here. I'm kind of curious what the OEM's response has been to the combination. I mean, you guys mentioned some contract wins, but has the combination led to actual business wins or losses or just what the OEM response has been? Thanks.

Randy Beggs: targeted target that we have now that

Speaker Change: Okay, okay, so more on the come there.

Speaker Change: Correct. Absolutely.

Speaker Change: Okay, this is my last one here. I'm kind of curious...

Speaker Change: What the the OEMs response has been to the combination? I mean you guys mentioned some contract wins But has the combination led to actual business wins or losses or just what the OEM response has been?

Randy Beggs: So the overall OEM response has been very positive. We actually have several of the OEMs that are approaching us to discuss opportunities as opposed to even approaching them. So, I would say yes, it has led to some opportunities or at least enhanced our chances to win some of those opportunities that we maybe would not have had the same opportunities prior to the five companies coming together.

Speaker Change: So the overall OEM response has been very positive. We actually have several of the OEMs that are approaching us to discuss opportunities as opposed to us even approaching them.

Speaker Change: So I would say yes, it has led to some of the opportunities, or at least enhanced our chances to win some of those opportunities that we maybe would not have had the same opportunity prior to the

Tyler Brown: Okay. All right. Thanks, guys. Appreciate it. Thank you.

Speaker Change: five companies coming together.

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

Speaker Change: Okay. All right. Thanks, guys. Appreciate it. Thanks, Tyler.

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

Alex Paris: Hi guys. Thanks for letting me sneak one in at the end.

Alex Paris: Hi, guys. Thanks for letting me sneak one in here at the end.

Alex Paris: Most of the relevant questions have been asked and answered. I just wanted to...

Alex Paris: Most of the relevant questions have been asked and answered. I just wanted to make a point of clarification and talk a little bit about the dedicated fleet business, since obviously that is more impacted in slower volume sort of periods. Can you maybe just give us an overview of what the dedicated fleet business is and by orders of magnitude how big it was on a proforma basis in the most recently completed year?

Alex Paris: get maybe a point of clarification and talk a little bit about the dedicated sleep business, you know, since obviously that is more impacted in slower volume sort of periods. Can you maybe just give us an overview of

Speaker Change: what the dedicated fleet business is and just orders of magnitude how big it was on a pro forma basis in the most recently completed year.

Randy Beggs: Talk to you about it. I can do the numbers. Yeah, so what it is is we have a contract for a specific number of trucks in the dedicated fleet.

Speaker Change: You can talk to what it is. I can do the numbers. Yeah, so what it is, is we have a contract...

Speaker Change: for a specific number of trucks in the dedicated fleet.

Randy Beggs: Guarantees that that number of trucks will be revenue-producing during the terms of that contract, regardless of the volumes or the impact on the economy. It ebbs up and down as the OEM's volumes increase, and they will ask us to add additional trucks as the volumes and the ground counts increase, and then those additional trucks will head back down when volumes and ground counts decrease. So, for July, with ground counts decreasing, that overflow number of trucks goes down to the contractual level, and then as volumes come back up and the ground counts increase, pressures begin, then they ask us to add more trucks into that fleet. So it absorbs them down based on volume and pressure created by ground. To your point on the

Speaker Change: that guarantees that that number of trucks will...

Speaker Change: be revenue producing during the terms of that contract regardless of the volumes or the impact on economics

Speaker Change: It ebbs up and down as the OEM's volumes increase.

Speaker Change: and that they will ask us to add additional trucks.

Speaker Change: as the volumes and the ground counts gain.

Speaker Change: and then those additional trucks will have back down when volumes and ground counts decrease.

Speaker Change: So, for July , with ground counts decreasing, that overflow number of trucks goes down to the contractual level. And then as volumes come back up and the ground counts increase and...

Speaker Change: pressures begin, then they will ask us to add more trucks into that fleet. So it adds up and down based on volume and pressures created by ground counts.

Operator: On the second quarter, 2024 earnings conference call. At this time, all participants on the list only mode. After the speech of presentation, there will be a question to answer session. So that's the question during the session. You will need to press star 1-1 of your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

Brad Wright: That's very helpful. Thank you for that additional color.

Brad Wright: To your point on the, or your question on the numbers, Alex, I mean... In 2023, in the second quarter, the dedicated fleet business was about 16.5% of total revenue. In 2024, it's only 7% of total revenue, and that was pretty consistent with the first quarter of the year as well. So even while we had a pretty sizable 6% increase in total revenue in Q2, the dedicated fleet business is literally down by half.

Speaker Change: To your point on the, or your question on the numbers, Alex, I mean...

Speaker Change: So

Speaker Change: In 2023, in the second quarter.

Alex Paris: The dedicated fleet business was about 16.5% of total revenue.

Operator: Please be advised today's conference has been recorded.

Alex Paris: in 2024.

Operator: I would now like to hand a conference over to you today, Brad Wright, Chief Financial Officer. Please go ahead.

Brad Wright: 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 10Q, which we expect to file early next week, covering three and six month periods ending June 30, 2024, include financial statements from both the predecessor accounting entity, Proficient Auto Transport, and the successor entity, Proficient Auto Logistics Inc. We are not required to provide in the Form 10Q will not contain pro formal financial data for the second quarter.

Alex Paris: All 6% increase in total revenue in Q2. The dedicated fleet business is literally down by half.

Alex Paris: And then maybe another similar sort of summary question, and this will be my final question. Since the acquisition closed on May 13th, you've done a number of things in the integration of the five founding companies, software; you've done a fuel contract. Can you just kind of give us a soup to nuts sort of overview of what you've done with the integration of the five founding companies, specifically in terms of what systems have been, you know, where we are in that process, essentially? Thank you. Sure, I'll come back.

Speaker Change: That's very helpful. Thank you for that additional color. And then just maybe another similar sort of summary question, and this will be my final question. Since the acquisition closed on May 13th, you've done a number of things on the integration of the five founding companies.

Speaker Change: software, you've done a fuel contract. Can you just kind of give us a soup to nuts sort of overview on what you've done on integration of the five founding companies specifically since, you know, in terms of

Brad Wright: However, our earnings release provides comparative summary, unaudited, combined financial information for the second quarter for the five founding companies. Our earnings release can be found under the investor relations section of our website at Proficient Auto Logistics.com. Our 10Q and 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.

Speaker Change: You know

Randy Beggs: Sure. I'll give you a high grade because I could talk an hour about it.

Speaker Change: what systems have been, you know, where we are in that process essentially. Thank you.

Speaker Change: Sure, I'll give you a high-level, because I could talk an hour about it, but...

Randy Beggs: But um... First of all, it's system integration for the five companies that are now in the TMS. The fifth one is scheduled to go live on October 1st. We could have done that earlier, but we are turning it on on October 1st. Also, the Finance System, so that all five companies will be on the finance system. It made sense to hold onto the last operating system rather than have to do the integration with their old finance software and then three and a half weeks later, flip it over to the new software. So, we made the decision to hold their TMS transition for three and a half weeks. The Finance System Transition.

Speaker Change: First of all, it's system integration. Four of the five companies are now with TMS.

Brad Wright: I encourage you to review the cautionary statement in our earnings release describing factors that could cause actual results to differ from those expressed in our forward-looking statements. Further information can be found in our SEC filings. During this call, we also may be referring to measures that include adjusted operating income, EBITDA, and adjusted EBITDA. Please refer to the portions of our earnings release that provide reconciliations of those profitability measures to gap measures such as operating earnings and earnings before income taxes or net income.

Speaker Change: 5th one is scheduled to go live October 1st. We could have done that earlier but we are turning on on October 1st also the

Speaker Change: finance system so that all five companies will be on the finance system.

Speaker Change: It made sense to hold the last operating system rather than have to do the integration with their old finance software and then three and a half weeks later flip it over to the new software.

Speaker Change: We've made the decision to hold the TMS transition at three and a half weeks to ease the finance system transition.

Brad Wright: Joining me on today's call, our Rico Delb, Proficient's Chairman and Chief Executive Officer, and Randy Begs, 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 second quarter. After our prepared remarks, we will open the call to questions.

Randy Beggs: We have fully integrated the brokerage group and tasked them with not only creating business but also focusing on backhaul. The two New Jersey companies are operating at the end of the day; several of the departments we've merged together already on the West Coast. We've actually consolidated a couple of the locations down the lawn. And... and we've also done some additional software integration with the five companies on 10th Street.

Speaker Change: The

Speaker Change: The

Brad Wright: 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.

Speaker Change: We have fully integrated the brokerage group and tasked them on not only creating business but also focusing on backhaul.

Speaker Change: The two New Jersey companies are operating as a

Rico Delb: Now, I would like to introduce Rico Del who will provide the company update. Thank you, Brad, and good morning, everyone. I'll start out with an overview of our operations during the second quarter and some trends that provide insight into our expectations for the back half of 2024.

Speaker Change: Several of the departments we've merged together already on the

Speaker Change: On the West Coast, we've actually consolidated a couple of the locations down to one.

Rico Delb: I'll follow that with some exciting news about a strategic addition to proficient that we expect to close as early as next week. We believe that this is exactly the type of addition described to our investors during the IPO process. It is large enough to meaningfully increase our scale. It is geographically well-placed to increase our density in the Western United States and brings along best-in-class management and operating profitability.

Speaker Change: And we've also done some additional software integration with the five companies.

Randy Beggs: Supervision is just a name of a couple of them. So, multiple murders of software. We're beginning to merge some of the locations, and we've begun to consolidate some of these departments within certain companies in certain locations. The collaboration has been

Speaker Change: You know 10th Street

Speaker Change: Supervision, just to name a couple of them. So, multiple mergers of software.

Speaker Change: We're beginning to merge some of the locations, and we've begun to consolidate some of the

Rico Delb: First, as it relates to the second quarter, as we discussed in our last earnings call, second quarter unit volumes and related revenue started off very strong in April and May, with year-over-year revenue up approximately 11% for that two-month period. June, however, slowed considerably with unit volume slightly negative versus the same month of 2023, down less than 1% and revenue for the month was down approximately 8% versus the prior year. That trend has continued in July with flat unit volumes versus the same month of 2023 and total revenue off approximately 11%.

Speaker Change: departments within certain companies and certain locations. Collaboration has been very good and it's producing some results, so we're happy to see it.

Randy Beggs: Collaboration has been very good, and it's producing some results. We're happy to see it.

Randy Beggs: Absolutely, sounds like you've got a lot of work under your belt already, and then from a cost synergies perspective. We have the fuel contract renegotiated. But as you said, most of this stuff is going to come over the next year or so, year to 18 months, I think you said in the press release.

Speaker Change: Absolutely, sounds like you've got a lot of work under your belt already, and then from a cost synergies perspective.

Speaker Change: We have the fuel contract renegotiated, but as you said, most of this stuff is going to come over the next year or so, year to 18 months, I think you said in the press release.

Randy Beggs: Thanks, guys. To kind of gather the data on... you know, parts and maintenance providers, et cetera, and get the coordination in place as opposed to the fuel process was kind of the first one we'd identified. And again, we're progressing with that, but it's not fully implemented yet. So we'll see that in future results as well.

Speaker Change: Correct.

Speaker Change: Bye.

Speaker Change: Thanks a lot, Laurie. Thanks, guys. To kind of gather the data on...

Rico Delb: There is a seasonal aspect to July, as many OEMs elect to close plants for the week of July the fourth and depending on the environment, some even take the opportunity to shut up the plants for a two-week period. This year, you can add to that the CDK Global Software Outage at the end of June that slowed sales volumes during a typically strong holiday week. And keeping with the trend we're observing, many of the major auto manufacturers have used their second quarter earnings reports to 10 per second have volume guidance in the face of weaker than expected volume last quarter. References to high inventory that dealership lots declining profitability metrics in plant and cost-cutting measures were a common theme.

Speaker Change: parts and maintenance providers, et cetera, and get the coordination in place as opposed to a fuel process was kind of the first one we'd identified. And again, we're progressing that, but it's not fully implemented yet.

Speaker Change: So we'll see that in future results as well.

Alex Paris: Great. Well, thank you very much, guys.

Operator: Thank you. Our next question is a follow-up from Bruce Chan with Stiefel. You'll let us know.

Speaker Change: Great. Well, thank you very much, guys.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question is a follow-up from Bruce Chan with Stifel. Your line is now open.

Bruce Chan: Great. Thanks for the double dip here.

Bruce Chan: Great, thanks for the double dip here. Just a couple of follow-ups, you know, I wanted to first pick up on Ryan's question about the assumptions behind the guide.

Bruce Chan: Just a couple of follow-ups. I wanted to first pick up on Ryan's question about the assumptions behind the guide. We've been hearing a little bit more about some upcoming ILA negotiations and potential impact there, especially on the East Coast. Is there anything baked into the guidance on that front? Maybe you could just speak to any conversations you've had about positioning with your customers ahead of a potential labor disruption and what that could mean for your operations, whether that's positive or negative.

Rico Delb: We're mindful of guidance from our primary customers as we assess our projections for the remainder of the year and Brad will provide some additional detail in that regard with this comment. Our primary means of countering some current industry headwinds will come in the form of increasing market share. We noted in our previous earnings call the addition of nine net new contracts in 24 through the end of May, an additional five new contracts were acquired during June and July.

Speaker Change: We've been hearing a little bit more about some upcoming ILA negotiations and the potential impact there, especially on the East Coast.

Speaker Change: Is there anything baked into the guidance on that front, and maybe you could just speak to any conversations you've had about positioning with your customers ahead of a potential labor disruption, and what that could mean for your operations, whether that's positive or negative.

Brad Wright: I wouldn't, Bruce, I wouldn't say there was anything specific to that that went into the assumptions, but, I mean, anything in the conversation?

Rico Delb: In addition, there were three contracts renewed with significant expansion of allocated lanes. The precise impact on a revenue of these additions is dependent on the volume ultimately generated by the respective OEMs, but our coverage network and quality service is clearly being well received in the marketplace.

Speaker Change: I wouldn't, Bruce, I wouldn't say there was anything specific to that that goes into the assumptions, but I mean anything in conversation?

Brad Wright: But I mean, if there were a major labor disruption, that would be unfavorable for us.

Bruce Chan: No. No.

Bruce Chan: But, I mean, if there were a major labor disruption, that would be unfavorable for us.

Brad Wright: Oh, yeah, but you wouldn't you wouldn't see any Okay, but you wouldn't see any associated benefit to pricing, for example, as customers need to divert, you know, maybe

Bruce Chan: Okay, but you wouldn't see any...

Rico Delb: Now, a little color on our strategic acquisition. We're very excited to announce this morning the anticipated closing of our acquisition auto transport group. We've been extremely impressed with the team at ATG and the high quality business they've built over the last 25 years and we're enthusiastic about the prospect of adding them to the existing foundation of proficient auto logistics just to give you an idea of the scale they'll add to our platform.

Speaker Change: Okay, but you wouldn't see any associated benefit to pricing, for example, as customers need to divert, you know, maybe to different geographies?

Brad Wright: Yeah, there could be an opportunity there for, you know, the creation of, you know, overflow parking, you know, with the necessity for them to divert to different locations. Yeah, and pay spot rates. Pay spot rates.

Speaker Change: Yeah, there could be an opportunity there for, you know, the creation of, you know, overflow, you know, with the necessity for them to divert to different locations. Yeah, and pay spot rates. Pay spot rates on it, yes.

Bruce Chan: Got it. Okay. That's really helpful. And then, just while I was up here, Rick, I wanted to clarify some of your comments around the fuel savings. You know, the plan that you're talking about now, that's the kind of original 3 million in annual savings that you talked about last quarter. And that's on the company fleets. Does that include any opportunity to roll out that fuel program to the sub hauler fleet? And if so, you know, what could the timeline or the impact look like? Rick, there.

Rico Delb: ATG controls a fleet of over 100 vehicles with approximately 80% of those being company owned. Equipment has an average age of about 5.5 years, which is consistent with the existing fleet at proficient employee base is approximately 80 personnel with roughly 75% being drivers. ATG has delivered approximately 200,000 auto annually in recent years and is expected to add about 8% to our revenue growth over the next year. They operate and margins consistent with the best of our founding companies and are expected to be immediately accreted to earnings per share.

Speaker Change: Got it. Okay, that's really helpful. And then just the last follow-up here, Rick, I wanted to clarify some of your comments around the fuel savings.

Rick O'Dell: You know, the plan that you're talking about now, that's the kind of original $3 million in annualized savings that you talked about.

Speaker Change: Last quarter, and that's on the company fleet. Does that include any opportunity there to roll out that fuel program to the sub hauler fleet? And if so, you know, what could the timeline or the impact look like there?

Rick O'Dell: Yeah, we're exploring that. But we don't, that would require some incremental technology and process implementations for us to do that. And the savings are potentially material, probably going to go up by at least 50%.

Speaker Change: Yeah, we're exploring that, but we don't, that would require some incremental...

Rico Delb: We'll be hearing more about this addition next quarter following the official closing of the Trans Act.

Speaker Change: technology and process implementations for us to do that. But the savings are potentially material, it would probably go up by at least 50%.

Brad Wright: I'll now turn it back over to Brad to cover some key financial highlights. Thank you Rick. I'll start by reiterating a few of the highlights that we called out in the earnings press release earlier this morning. All financial references are for the combined founding companies. Operating revenue of 106.6 million in the quarter was an increase of 5.8%. Adjusted operating ratio improved from 92.7% in the second quarter of 2023 to 91.8% in 2024.

Rick O'Dell: Okay, got it. So, that's completely incremental to the current program that you've been talking about.

Speaker Change: Okay, got it. So that's completely incremental to the current program that you've been talking about? It would be.

Bruce Chan: Great. Okay. Very helpful. Thank you for the follow-up.

Speaker Change: Great. Okay, super helpful. Thank you for the follow-up.

Operator: This concludes the question and answer session. Thank you for your participation. This does conclude today's conference call. You may now disconnect.

Speaker Change: Okay. Thank you. This concludes the question and answer session. Thank you for your participation. This does conclude today's conference call. You may now disconnect. I have one more comment if you don't mind.

Brad Wright: I have one more comment, if you don't mind. Sure.

Brad Wright: So just in terms of commenting on the accretion from the ATG acquisition, I guess the way to look at it, because we really talk about it on an annualized basis, is. You know, the midpoint of the consensus estimates for next year are $1.30, and on an annualized basis, we would expect the ATG acquisition to be accreted by about 25 cents. So just to give you some scale and what the impact of the accretion would be. That's all I had. Thank you very much for your interest.

Brad Wright: This was also an improvement from 93.2% in the first quarter of this year. Adjusted operating income was 8.7 million in the most recent quarter of 19.4% from 7.3 million in the second quarter last year. The adjusted profitability measures add back the impact of stock compensation expense resulting from RSU grants made concurrent with our IPO which are expense over the vesting period in most cases three years. The other expense added back in these measures is amortization of intangible assets resulting from the acquisitions of the founding companies.

Speaker Change: Sure.

Speaker Change: So just in terms of commenting on the accretion from the ATG acquisition, I guess the way to look at it, because we really talk about it on an annualized basis, is

Speaker Change: The midpoint of the consensus estimates for next year are $1.30, and on an annualized basis, we would expect the ATG acquisition to be accreted by about $0.25.

Speaker Change: So just to give you some scale of what the impact of the accretion would be.

Operator: Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: That's all I have. Thank you very much for your interest.

Brad Wright: Amortizable intangibles consist primarily of trade names and customer relationships which you could expect to add approximately 2 million per quarter to operating expenses. These are both non-cash expense items that are removed from our operating metrics to provide a clear picture of the progress that we're achieving in our integration and synergy initiatives.

Speaker Change: Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Brad Wright: Following up to Rex comments about the environment. We came into the current year modeling approximately 8% revenue growth for the full year with about equal parts coming from volume and price. The recent trends experienced in June and July prompted us to reassess the outlook for the second half of 2024. We're now expecting sequential quarter revenue growth in the mid-single digits for the third quarter with adjusted operating ratio that is consistent with last quarter.

Brad Wright: The fourth quarter typically exhibits seasonal strength. That along with the full quarter of including ATG in our results we are expecting sequential quarter revenue growth of low double digits in the fourth quarter. The adjusted operating ratio is expected to improve by 50 to 100 basis points sequentially in the fourth quarter.

Speaker Change: Thanks for watching please subscribe and hit that like button....

Brad Wright: As relates to the balance sheet the company had approximately 36 million of cash and equivalence on June 30, 2024. Aggregate debt balances a quarter end where approximately 55 million for net debt of 19 million. Our fleet plan calls for approximately 20 million of growth cap acts during the remainder of 2024. The vast majority of which will be financed at market rates through existing lender relationships. Finally, the ATG acquisition will be done at a multiple and a mix of stock and cash roughly in line with the acquisitions of the five founding companies.

Brad Wright: Our approach to financing equipment, cap acts and a portion of the ATG purchase will leave plenty of liquidity available for other opportunities whether operational or strategic and leverage or remain below two times EBITDA. Total common shares outstanding are currently 26.1 million as disclosed in a form 8K filed earlier this morning. We expect the issue approximately 1 million shares in connection with the acquisition of ATG.

Operator: Operator, we will now take questions. Thank you. As a reminder to ask a question at this time, please press star 11 or your telephone away for your name to be announced. To withdraw your question, please press star 11 again.

Operator: Please send out a week of power to Q&A roster.

Bruce Chan: Our first question comes from the line of Bruce Chan with Stiefel. Your line is now open. Thank you operator and more guys. Some exciting results here. I certainly appreciate the time.

Rico Delb: Maybe just to start, I wanted to follow up on your comments about the monthly revenue trends. Certainly understand some of the puts and takes here with regard to the lower auto volumes and OEM activities, but it looks like maybe there was some associated and more pronounced yield impact there too. Can you maybe just walk us through what those headwinds were to the yield that kind of came on top of those volume pressures?

Rico Delb: So it's kind of a combination with the volume, you know, in our industry, spot moves tend to be when people have backlogged and they come at premium rates. And so when you have a softer volume environment, you know, we have less of those kind of spot moves that are at a premium. So that was really the impact. We have our numbers on. If you exclude, if you exclude some of our dedicated fleet, the revenue per unit was actually up about 3% on our contractual business. Okay, that's super helpful.

Rico Delb: And then just you know, turning to the operating ratio, certainly much faster OR improvement than we'd been modeling and just maybe want to dive into that a little bit. What are you seeing there as far as levers? I know you talk about some of the synergies, but it can maybe just give us some color on what opportunities you have on the efficiency side, especially as you start to think about a little bit of the top line pressure from the next few months here.

Rico Delb: Yeah, we still have a high degree of confidence in our key synergy in operating improvement initiatives. To be honest with you, those really weren't in place during this quarter. We have a little bit of benefit from purchasing synergies on fuel, but we only had that for about one month in the quarter. It was about $300,000. And then it's really more from implementing best practices and seeing a good cooperation between our operating companies, you know, in terms of sharing freight and minimizing backhaul opportunities, which were the ones we anticipated being able to move most quickly on. Okay, I was just going to say the major operating improvements are still ahead of us. Got it.

Rico Delb: And then just one more quick one, and I'll hop back into you, but as far as that IT process is concerned, are we now fully integrated to this point with all the upcodes? So we have four of the five implemented, and we've actually intentionally delayed the fifth of the companies to kind of simplify the integration with the implementation of the new accounting system. So but that's a very much on track. Thank you all for the implementations. Bruce, the accounting system and the fifth company on T on the TMS are scheduled to happen on October 1st. I appreciate that color. Thank you.

Ryan Merkel: Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open. Hey, good morning and thanks for taking the question. My first question is just on the revenue guide for 3Q. I think you said off mid single digits sequentially. Can you, you know, let give us the assumptions you're making about what you'll see in August and September. Did you sort of extrapolate what you saw in July or are you thinking it might be a bit of improvement?

Brad Wright: I think there's going to be improvement in the last two months of the quarter, Ryan, because, you know, as Rick mentioned in his comments, you know, you had some plant closures in July. We got off to a slow start with some of the, you know, the issues around the CDT outage. I just think there were, there were a couple of unique factors that probably exacerbated lower volumes in July and so we are expecting a little bit of an uptick which is just how we get to still an up quarter over quarter, but the bigger increases are to come in Q4, I believe.

Brad Wright: And then to follow up on that, the Q4 increase sequentially. You mentioned seasonality. Is that the only assumption or is there any assumptions on better volumes or better pricing? It's combination of seasonality and, you know, I mentioned that we also expect that we'll have a full quarter of ATG revenue in there and that's part of the increase as well. Got it. Good point. Okay.

Brad Wright: And then you mentioned that CDT issue. Can you quantify that? Was that an impact in the quarter? And is it better now? Just a little color on that would be helpful. I think short answers, no, we can't really quantify that. But, you know, in kind of reading between the lines when you listen to the OEMs earnings releases, there were multiple references to kind of excess inventory or high inventory anyway on dealership lots. And I think that's part of that was part of the issue. And that just kind of backs everything up. Yeah, makes sense.

Ryan Merkel: All right. Thanks for the time. That's it on. Thank you.

Operator: As a reminder to ask a question at this time, please press star 11 or your touchstone telephone.

Tyler Brown: Our next question comes from the line of Tyler Brown with Raymond James. Your line is now open. Hey, good morning, guys. Can you hear me? Yes. Oh, sorry.

Brad Wright: Hey, hey, just, Brad, I just want to, before we get into the Q&A, I just want a level set. So just given the timing of the IPO, you guys are only providing kind of high level metrics here in Q2, because the Q's details will be really on the predecessor. Is that right? But by the time we report Q3, we should be getting a full P&L cash flow balance sheet operating metrics with the release.

Brad Wright: Is that correct? That's right, Tyler. What you're going to see in the queue we filed, probably Tuesday next week, is you're going to get the combined quarter and balance sheet. You'll have a full gap balance sheet. What you won't have is a full quarter of operating results because it will be a combination of the predecessor company up until the IPO and then everybody from the IPO to the end of the quarter. So it's a little bit of a confusing presentation, frankly. Right, but by Q3 things should kind of level out for everybody out there. Okay, that's right. Very helpful.

Rico Delb: Okay, and then Rick, so can you talk a little bit more about the ATG transaction? How did that deal come together? Had you guys been working on that one for a while? Or was it, did it actually spawn given all of the interest around the IPO? Yeah, I mean, they were kind of one of the funnel opportunities. And then they were actually marketing the company. So you know, caused us to want to move quickly because it's such a great fit. Okay, so we have obviously have a pipeline of opportunities. But again, this one was such a good fit and such a great management team operating very well.

Rico Delb: So as you know, one of my key priorities when you make an acquisition is first priority is don't mess it up. They're operating well, kind of leave them alone. So, you know, it's not going to require a lot for us to absorb them into our network. We'll continue to advance our key priorities. And it just enhances our coverage area. And the quality of our crew. Okay, okay, perfect. Yeah, and I would assume this one will also move on to the team.

Rico Delb: Yes, they will. Okay, and then they have just they have a very robust technology platform, but we'd like to have them on the same platform that we're using for visibility. And they're clearly capable of managing the implementation without a lot on our side too. So that's plus.

Randy Begs: Okay, and then maybe kind of to this whole point about visibility in the TMS and just Randy any update on back all. Just maybe where, where were you guys in the quarter from an empty mile perspective, just how quickly do you think you can make some improvements on filling up some of those backalls. Yeah, so just the last four weeks, we were able to do 352 backalls that produced empty miles. I don't have the miles in front of me to give you the exact miles on it, but it was 352 backalls that aided in creating density and reducing empty miles and enhancing obviously the revenue on those trucks.

Randy Begs: We have the target lanes, but quite frankly, we're just doing, we're managing it manually right now. We're still working on putting our framework around it so we can better tie in sales incentives, and achieve some of our objectives and be dynamic whereas if we win new business that creates new empty lanes then you know we'll look be looking to fill those as opposed to kind of a more static targeted target that we have now that we're doing manually. Okay okay so more on the come there. Correct. Absolutely.

Rico Delb: Okay just my last one here I'm kind of curious what the OEM's response has been to the combination. I mean you guys mentioned some contract wins but has the combination led to actual business wins or losses or just what the OEM response has been. So the overall OEM response has been very positive. We actually have several OEMs that are approaching us to discuss opportunities as opposed to even approaching them. So I would say yes it has led to some of the opportunities or at least enhanced our chances to win some of those opportunities that we maybe would not have had the same opportunity prior to the five companies coming together.

Tyler Brown: Okay all right thanks guys. Appreciate it. Thanks Tyler.

Operator: Thank you.

Alex Parris: Our next question comes from the line of Alex Parris with Barrington Research. Your line is open. Hi guys thanks for letting me sneak one in here at the end. Most of most of the relevant questions have been asked and answered. I just wanted to get maybe a point of clarification and talk a little bit about the dedicated sleep business. In a sense obviously that is more impacted in slower volume sort of periods.

Alex Parris: Can you maybe just give us an overview of what the dedicated sleep business is and just orders of magnitude how big it was on a pro forma basis in the most recently completed year. Talk to what it is I can do the number here. So what it is is we have a nearly contract for a specific number of trucks and the dedicated fleet that guarantees that that number of trucks will be revenue producing during the terms of that contract regardless of the volumes or the impact on economics.

Alex Parris: It ebbs up and down as the OEM's volumes increase and that they will ask us to add additional trucks as the volumes and the ground counts gain and then those additional trucks will have back down when volumes and ground counts decrease. So for July with ground counts decreasing that overflow number of trucks goes down to the contractual level and then as volumes come back up and the ground counts increase and and pressures began then they were asked to add more trucks into that fleet.

Alex Parris: So it adds up and down based on volume and pressure created by ground counts. To your point on the, or your question on the numbers, Alex, I mean, in 2023, in the second quarter, the dedicated fleet business was about 16 and a half percent of total revenue. In 2024, it's only 7 percent of total revenue and that was pretty consistent with the first quarter of the year as well. So even while we've had, you know, a pretty sizable, all 6 percent increase in total revenue in Q2, the dedicated fleet business is, is literally down by half.

Rico Delb: Yeah, that's very helpful. Thank you for that additional color.

Rico Delb: And then just maybe another similar sort of summary question on this would be my final question. Since the acquisition closed on May 13th, you've done a number of things on the integration of the five founding companies, software, you've done a fuel contract. Can you just kind of give us a suit to nuts sort of overview of what you've done on integration of the five founding companies specifically since, you know, in terms of, you know, what systems have been, you know, where we are in that process, essentially.

Rico Delb: Thank you. Sure. I'll give you a high level because I could talk an hour about it. But, first of all, system integration for the five companies are now on the TMS. Fifth one is scheduled to go live October 1st. We could have done that earlier, but we are turning on October 1st also the finance systems so that all five companies will be on the finance system and make sense to hold the last operating system rather than have to do the integration with their old finance software.

Rico Delb: And then three and a half weeks later, flip it over to the new software. So we've made the decision just to hold that TMS transition that three and a half weeks to ease the finance system transition. We have fully integrated the brokerage group and tasked them on not only creating business, but also focusing on back all the two New Jersey companies are operating as several of the departments we've worked together already.

Rico Delb: On the West Coast, we've actually consolidated a couple of the locations down to one. And we've also done some additional software integration with the five companies in a ten Supervision, just to name a couple of them. So multiple murders of software. We've beginning to merge some of the locations and we've begun to consolidate some of the departments within certain companies and certain locations. Collaboration has been very good and it's producing some results.

Rico Delb: So we're happy to see it. Absolutely. Sounds like you've got a lot of work under your belt already. And then from a cost-centered ease perspective, we have the fuel contract renegotiated. But as you said, most of this stuff is going to come over the next year or so, year to 18 months, I think you said an approach or list. Correct. So look at the length guys to kind of gather the data on, you know, parts and maintenance providers, etc, and get the coordination in place as opposed to fuel process. It was kind of the first one we identified. Again, we're progressing that but it's not fully implemented yet.

Rico Delb: So Great. Well, thank you. Thank you very much, guys. Thank you.

Bruce Chan: Our next question is a follow-up from Bruce Chan with Stiefel. Your line is open. Great. Thanks for the double dip here. Just a couple of follow-ups. You know, I wanted to first pick up on Ryan's question about the assumptions behind the guide. We've been hearing a little bit more about some upcoming ILE negotiations and potential impact there, especially on the East Coast. Is there anything baked into the guidance on that front?

Rico Delb: And maybe you could just speak to any conversations you had about positioning with your customers ahead of a potential labor disruption and what that could mean for your operations, whether that's positive or negative? I wouldn't, Bruce, I wouldn't say there was anything specific to that that goes into the assumptions, but I mean, anything in conversation? No. But I mean, if there were a major labor disruption, that would be unfavorable for us.

Rico Delb: But you wouldn't see any associated benefit to pricing, for example, as customers need to divert, you know, maybe to different geographies. There could be an opportunity there for, you know, the creation of overflow with the necessity for them to divert at a different location. Yeah, and pay spot rates. Pay spot rates on, yes. Got it. Okay, that's really helpful.

Rico Delb: And then just the last follow-up here, Rick, I wanted to clarify some of your comments around the fuel savings. You know, the plan that you're talking about now, that's the kind of original 3 million in annual savings that you talked about last quarter. And that's on the company fleet. Does that include any opportunity there to roll out that fuel program to the sub-huller fleet? And if so, you know, what could the timeline or the impact look like there?

Rico Delb: Yeah, we're exploring that, but we don't, that would require some incremental technology and process implementations for us to do that, but the savings are potentially material that would probably go up by at least 50%. Okay, got it. So that's completely incremental to the, to the current program that you've been talking about. It would be great. Okay, super helpful. Thank you for the, for the call well. Okay. Thank you. This concludes the questioning answer session. Thank you for your participation. This does conclude today's conference call.

Operator: You may now disconnect.

Brad Wright: I have, I have one more comment if you don't mind. Sure. So just in terms of commenting on the accretion from the ATG acquisition. I guess the, the way to look at it because, because we really talk about it on an annualized basis is, you know, the, the midpoint of the consensus estimates for next year or $1.30 and on an annualized basis, we would expect the ATG acquisition to be created by about 25 cents. So just to give you some scale what the impact of the accretion would be.

Brad Wright: That's all I had. Thank you very much for your interest. Thank you.

Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect. Thank you very much.