Q3 2024 Proficient Auto Logistics Inc Earnings Call
Okay.
Operator: Good day, and thank you for standing by.
Good day, and thank you for standing by.
Operator: Welcome to the Proficient Auto Logistics 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in listening 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. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
Welcome to the club auto logistics third quarter 2024 earnings conference call.
At this time all participants are in listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone you didn't hear an automated message if I see your hand. This race to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded.
Brad Wright: I would now like to hand the conference over to your speaker, Brad Wright, Chief Financial Officer. Please go ahead. Good morning, everyone. I'm Brad Wright, Chief Financial Officer of Proficient Auto Logistics. Thank you for joining us on Proficient's third quarter 2024 earnings call. Under SEC rules, our Form 10-Q, which we expect to file next week, covering the three- and nine-month periods ending September 30, 2024, includes financial statements for both the predecessor accounting entity, Proficient Auto Transport, and the successor entity, Proficient Auto Logistics, Inc. We are now required to provide in the Form 10-Q will not contain pro forma financial data for the combined companies.
Speaker Change: I would now like to hand, the conference over to your Speaker, Brad Wright Chief Financial Officer. Please go ahead.
Speaker Change: Good morning, everyone and Brad <unk>, Chief Financial Officer of professional auto logistics. Thank you for joining us on <unk> third quarter 2024 earnings call.
Speaker Change: Under SEC rules, our Form 10-Q, which we expect to file next week.
Covering the three and nine month periods ending September 32024 includes financial statements for both the predecessor accounting entity patient transport and the successor entity proficient model Logistics, Inc were not required to provide in the Form 10-Q will not contain pro forma financial data.
Brad Wright: However, our earnings release provided comparative summary unaudited combined financial information for the third quarter and the nine months ended September 30 for the combined company. Our earnings release can be found under the investor relations section of our website at proficientautologistics.com. Our 10-Q once 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. 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 statement.
Speaker Change: Buying companies. However, our earnings release provided comparative summary, unaudited combined financial information for the third quarter and the nine months ended September 30 for the combined companies.
Speaker Change: Our earnings release can be found under the Investor Relations section of our website at prohibition auto logistics Dot Com. Our 10-Q once 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.
Speaker Change: This information is based on our current expectations and is not a guarantee of future performance.
Speaker Change: Average 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.
Brad Wright: Further information can be found in our SEC filings. During this call, we may also 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, earnings before income taxes, or net income.
Speaker Change: Further information can be found in our SEC filings. During this call. We may also 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 GAAP measures such as operating earnings.
Speaker Change: Earnings before income taxes or net income.
Brad Wright: Joining me on today's call are Rick O'Dell, Proficient's Chairman and Chief Executive Officer, and Amy Rice, our President and Chief Operating Officer. We will provide a company update as well as an overview of the company's combined results for the third 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.
Speaker Change: Joining me on today's call are Rick O'dell.
Speaker Change: <unk>, Chairman and Chief Executive Officer, and Amy Rice, our President and Chief operating Officer.
Speaker Change: We will provide a company update as well as an overview of the Companys combined results for the third quarter.
Speaker Change: 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.
Speaker Change: May get back into the queue. If you have additional questions now.
Rick O'Dell: Now I'd like to introduce Rick O'Dell who will provide the company.
Now I'd like to introduce Rick O'dell, who will provide the company update.
Rick O'Dell: Thank you, Brad, and good morning, everyone. I'll start out with an overview of our operations during the third quarter and some trends that provide insight into our expectations for the remainder of the As we discussed in our last earnings call, July unit volumes were up by 2.1% versus the same month in 2023. However, revenue was down by 11% in July of 2024 versus the comparable month of 2023. This disparity between unit volume and revenue comparisons continued for the duration of the third quarter, with a full quarter volume decline of 0.4% versus the comparable quarter. The total revenue was down by 12.5%.
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 third quarter and some trends to provide insight into our expectations for the remainder of this year.
Rick O'Dell: As we discussed in our last earnings call July unit volumes were up by two 1% versus the same month in 2023.
Rick O'Dell: However, revenue was down by 11% in July of 2024.
Rick O'Dell: Comparable months of 2023.
Rick O'Dell: Disparity between unit volume and revenue comparisons continue for the duration of the third quarter with a full quarter volume decline of 4% versus the comparable quarter.
Rick O'Dell: Total revenue was down by 12, 5%.
Rick O'Dell: The macro auto industry environment exhibited weakness in the third quarter, with seasonal plant shutdowns in July, followed by an even weaker August and only a modest acceleration in September toward the quarter close. Slack demand resulted in an outsized impact to certain of our premium price services. For example, our dedicated fleet service generated revenue of $4.7 million during the third quarter, compared to $16.2 million in the third quarter of 2023. Our revenue from spot buy opportunities during the quarter comprised only 4% of total revenue. in the recent quarter versus 10% a year ago. The revenue per unit from spot buys fell by 40% year-over-year.
Rick O'Dell: Macro auto industry environment exhibited weakness in the third quarter with seasonal plant shutdowns in July followed by weaker August and only a modest acceleration in September towards the quarter club.
Rick O'Dell: Slack demand resulted in an outsized impact to certain of our premium priced services.
Rick O'Dell: For example, our dedicated fleet service generated revenue of $4 7 million.
Rick O'Dell: During the third quarter compared to $16 $2 million in the third quarter of 2023.
Rick O'Dell: Our revenues from spot buy opportunities during the quarter.
Rick O'Dell: Only 4% of total revenue.
Rick O'Dell: In the recent quarter versus 10% a year ago.
Rick O'Dell: Revenue per unit for a spot buy style by 40% year over year.
Rick O'Dell: There was both a significant reduction in the spot buy opportunity made available to the market as well as much less spot pricing power due to significant available capacity to address limited demand. Seasonally adjusted annual sales rates were lower by 1.9% in the third quarter compared to a year ago, hitting a low of $15.1 million in August. before recovering to 15.89 in September.
Rick O'Dell: There was a significant reduction in the spot buy opportunity made available to the market as well as much less spot pricing power. It has significant available capacity to address limited demand.
Seasonally adjusted annual sales rates were lower by one 9% in the third quarter compared to a year ago, hitting a low of $15 1 million in August.
Rick O'Dell: Before recovering to $15 $8 million in September.
Rick O'Dell: In recent earnings releases, major auto manufacturers have continued to reference high inventories at dealership lots, declining profitability, reduced full-year outlooks, and related cost-cutting initiatives. while the fourth quarter typically exhibits stronger seasonal volume relative to the third quarter. and early feedback from the OEMs called for this seasonal update.
Rick O'Dell: In recent earnings releases major auto manufacturers have continued to reference high inventories at dealership lots declining profitability reduced full year outlooks and related cost cutting initiatives, while the fourth quarter are typically exhibit stronger seasonal volume relative to the third quarter.
Rick O'Dell: And early feedback from the Oems has called for the seasonal uptick.
Rick O'Dell: Cautionary language from several carriers recently indicates that the Lyft in 2024 might not be as pronounced as in the recent past.
Rick O'Dell: There are some positive takeaways from October. saw our top $16 million and we saw increases in our unit deliveries year over year versus the first month of quarter 3. However, the pressure on revenue per unit persists and we have mixed signals on the expectations for the remainder of the quarter.
have passed, there are some positive takeaways from October.
Rick O'Dell: As such, we remain cautious in our outlook for this quarter and into early 2025. Brad will speak to this in more detail in a moment. We continue to be positive on a relative market position and see opportunities for 2025 and beyond. That gives us confidence in the business and investment thesis for Proficient Auto Logistics. We've noted in previous calls the addition of new contracts in 2024. 14 net new through our call in August and another three since that time. The third quarter also included increased renewal activity, with a total of seven meaningful contracts removed, most with three-year terms and one with a five-year term.
Rick O'Dell: We continue to be positive on our relative market position and see opportunities for 2025 and beyond that gives us confidence in the business and investment thesis for profession Auto logistics. We've noted on previous calls. The addition of new contracts in 2024.
<unk> net new <unk> through our call in August.
Rick O'Dell: Since that time.
Rick O'Dell: Third quarter also included increased renewal activity with a total of seven four contracts were made.
Rick O'Dell: Most of the three most with three year terms and one with a five year term.
Rick O'Dell: Pleased with the level of ongoing conversations with customers about ways that we can work more closely together across the entire footprint of our expanded operation and provide solutions that enhance our partnership. these customers further. We continue to progress with our key operating initiatives. Cost synergies have been identified in the areas of fuel, tires, and parts with national contracts now in place or in the late stages of negotiation. Additional opportunities are being pursued with travel, lodging, and employee benefit programs. We continue to target $8 to $10 million in annualized savings from this initiative. Ship to Company Deliveries has been further enabled.
We're pleased with the level of ongoing conversations with customers about ways that we can work more closely together across the entire footprint of our expanded operation and provide solutions that enhance our partnership with.
Rick O'Dell: With these customers further.
Rick O'Dell: We continue to progress with our key operating initiatives cost synergies have been identified in the areas of fuel tires and parts with national contracts now in place or in the late stages of negotiation additional opportunities are being pursued with travel.
Rick O'Dell: An employee benefit programs.
Rick O'Dell: Change the target $8 million to $10 million in annualized savings from this initiative.
The shift to company deliveries has been further enabled.
Rick O'Dell: through the addition of 66 truck and trailer units since the initial mergers, an increase to the own fleet of approximately 10%. Although partly driven by revenue mix during the quarter, we note that the company deliveries in the most recent quarter were 39% of the total, which is an increase from 34% in the same quarter a year ago. Technology investments are 75% complete with respect to the transportation management system, with full completion to be accomplished this quarter. Cost allocation technology continues to evolve, but requires further customization to recognize the unique nature of auto hauling compared to the truckload and the LTLU.
Through the addition of 66 truck and trailer units since the initial mergers and increase to the own fleet of approximately 10%.
Rick O'Dell: Although partly driven by revenue mix during the quarter. We note that the company deliveries in the most recent quarter was 39% of the total which is an increase from 34% same quarter a year ago.
Rick O'Dell: Technology investments are 75% complete with respect to the transportation management system with full completion to be accomplished this quarter.
Rick O'Dell: Cost allocation technology continues to evolve.
Rick O'Dell: <unk> further customization to recognize the unique nature of auto hauling compared to the truckload and the <unk> users.
Rick O'Dell: Utilization improvements are primarily focused on load-sharing between the merged companies to fill empty lanes. During the third quarter, approximately 3% of units and revenue were generated through the load-sharing opportunities identified across our network.
Rick O'Dell: Utilization improvements are primarily focused on load sharing between the merged companies to fill empty lanes during the third quarter approximately 3%.
Rick O'Dell: Of units and revenue were generated through the load sharing opportunities identified across our network.
Rick O'Dell: And finally, the acquisition of Auto Transport Group was completed during the third quarter as planned, and they're rapidly integrating into the Proficient Umbrella company. They continue to exhibit the performance and profitability characteristics that we anticipated, and they should contribute approximately 10% of the company's revenue in the current quarter.
Rick O'Dell: Finally, the acquisition of auto Transport group was completed during the third quarter as planned and we're rapidly integrating into the proficient umbrella companies they've.
They continue to exhibit the performance and profitability characteristics that we anticipated.
Rick O'Dell: And they should contribute approximately 10% of the company's revenue in the current quarter.
Brad Wright: I'll now turn it back to Brad to cover key financial highlights.
Speaker Change: I'll now turn it back to Brad cover key financial highlights.
Brad Wright: Thank you, Rick. I'll start with a few summary statistics. All prior year comparisons are for the combined company. Operating revenue of $91.5 million in the quarter was a decrease of 12.5%. Units delivered of 499,311 represented a 0.4% decrease from prior year. Revenue per unit, excluding fuel surcharge, was approximately $169 versus $190 in the same quarter last year. Company deliveries were 39% of revenue in Q3, up from 34% in 2023. Sub-haul deliveries were therefore 61% of revenue in Q3, down from 66% in 2023. Of note with respect to the mix of company versus subhaul deliveries, this past quarter shows how the latter is an effective flex to counter volatility in volumes from period to period.
Brad Wright: Thank you Rick I'll start with a few summary statistics all prior year comparisons are for the combined companies.
Brad Wright: Operating revenue of $91 5 million in the quarter was a decrease of 12, 5% units delivered a 499000.
Brad Wright: 311 represented a 0.4 decrease 4% decrease from prior year.
Revenue per unit, excluding fuel surcharge was approximately $169 versus 190 in the same quarter last year.
Brad Wright: Company deliveries were 39% of revenue in Q3 up from 34% in 2023 sub haul deliveries were therefore, 61% of revenue in Q3 down from 66% in 2023.
Of note with respect to the mix of company versus sub haul deliveries. This past quarter shows how the latter is an effective flex to counter volatility in volumes from period to period.
Brad Wright: The corollary effect can be seen in the respective revenue per unit, with unit revenue increasing by just under 1% for company deliveries, predominantly contract business. while the revenue per unit for sub-haulers declined by 17.5% year-on-year, reflecting primarily the impact of lack of spot-buy business and lower price premiums, as Rick mentioned earlier.
Brad Wright: The corollary effect can be seen in the respective revenue per unit with unit revenue increasing by just under 1% for company deliveries predominantly contract business.
Brad Wright: The revenue per unit or sub haulers declined by 17, 5% year on year.
Speaker Change: Collecting primarily the impact of lack of spot buy business and lower price premiums as Rick mentioned earlier.
Brad Wright: expanding on the current environment. October units delivered were up 6.2 percent compared to October of 2023. Revenue per unit was nonetheless down 15.2 percent resulting in a year-over-year transportation revenue excluding fuel surcharge off 10 percent from the prior year. Comparing October of 24 to July 2024, the first month of the last quarter, units delivered were up 10.4%. Revenue per unit was lowered by 4.1%, with a net result of transportation revenue, again excluding fuel surcharge, up by 5.8%.
Speaker Change: Expanding on the current environment.
Speaker Change: October units delivered were up six 2% compared to October of 2023 revenue per unit was nonetheless down 15, 2%, resulting in a year over year transportation revenue, excluding fuel surcharge off 10% from the prior year.
Speaker Change: Comparing October of 24 to July 2020 for the first month of the last quarter.
It's delivered were up 10, 4% revenue per unit was lower by four 1% with a net result of transportation revenue again, excluding fuel surcharge up by five 8%.
Brad Wright: So while we are seeing early evidence of the expected seasonal uptick in volume, the ongoing pressure on revenue per unit in this environment, and the fact that November to date is not showing meaningful acceleration, keeps us cautious on fourth quarter guidance. based on our activity quarter to date and having the benefit of a full quarter from our ATG edition. We are expecting sequential quarterly revenue to increase by low to single mid-digit. At that level of revenue, there should be modest improvement in the adjusted operating ratio, but not a return to the low 90s that we experienced earlier this year.
Speaker Change: So while we're seeing early evidence of the expected seasonal uptick in volume.
Ongoing pressure on revenue per unit in this environment and the fact that November to date is not showing meaningful acceleration keeps us cautious on fourth quarter guidance.
Based on our activity quarter to date and having the benefit of a full quarter from our Atg edition.
Speaker Change: We are expecting sequential quarterly revenue to increase by low to single mid digits.
Speaker Change: At that level of revenue there should be modest improvement in the adjusted operating ratio, but not a return to the low ninety's that we experienced earlier this year.
Brad Wright: As it relates to the balance sheet, the company had approximately $16.8 million of cash in equivalents on September 30, 2024. Aggregate debt balance at quarter end, we're approximately $73.5 million for a net debt of $56.7. The increase in net debt from last quarter reflects our use of cash in the acquisition of ATG and financing of fleet growth during the quarter. Total common share is outstanding, end of the quarter at 27 million, an increase of just over 1 million shares from the end of the second quarter as a result of the purchase of ATG disclosed previously.
Speaker Change: As it relates to the balance sheet. The company had approximately $16 8 million of cash and equivalents on September 32024.
Speaker Change: Aggregate debt balance at quarter end were approximately $73 5 million for a net debt of $56 7 million the.
Speaker Change: The increase in net debt from last quarter reflects our use of cash in the acquisition of Atg and financing of fleet growth during the quarter.
Speaker Change: Total common shares outstanding ended the quarter at $27 million, an increase of just over 1 million shares from the end of the second quarter as a result of the purchase of Atg disclosed previously.
Brad Wright: As Rick mentioned, we remain confident in our market position and investment thesis. We're hopeful that with the election uncertainty now behind us, and another interest rate reduction this week, stronger consumer demand for new vehicles will emerge and enable us to demonstrate our performance capabilities more fully in the future.
As Rick mentioned, we remain confident in our market position and investment thesis, we're hopeful that with the election uncertainty now behind us and another interest rate reduction this week stronger consumer demand for new vehicles will emerge and enable us to demonstrate our performance capabilities more fully in the future.
Rick O'Dell: Rick. Well, in conclusion, third quarter backdrop was very weak and unanticipated. Proficient continue to advance foundational initiatives in spite of the environment that position our company to gain market share, provide enhanced value proposition, and improve our efficiencies going forward. We're committed to capturing these opportunities for all of our shareholders.
Speaker Change: Rick.
Rick O'Dell: Well in conclusion third quarter backdrop was very weak and unanticipated.
Rick O'Dell: Proficient continued to advance foundational initiatives in spite of the environment that position our company to gain market share provide enhanced value proposition and improve our efficiencies going forward, we're committed to capturing these opportunities for all of our shareholders.
Operator: Operator will now take your questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by, we'll call the Q&A.
Speaker Change: Operator, we'll now take your questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced.
Speaker Change: Draw. Your question. Please press star one again please.
Speaker Change: Please turn to.
Speaker Change: Q&A roster.
Tyler Brown: Our first question comes from the line of Tyler Brown with Raymond James. Your line is now open.
Our first question comes from the line of Tyler Brown with Raymond James Your line is now open.
Tyler Brown: Hey, good morning, guys. or Encephalitis Hey, Brad, can we just start with spot? So maybe first off, do you have what the spot mix was? in Q1 and Q2 on a pro forma basis. In terms of what? In terms of revenue? Or you mean percentage of revenue? However you said the 4 and the 10 percent. Keep it on average. Thank you. So that in the first quarter was close to 15 percent and in the second quarter was just over 12.
Speaker Change: Hey, good morning, guys.
Speaker Change: More important though.
Speaker Change: Hey.
Speaker Change: Brad can we just start with spot. So maybe first off do you have what the spot mix was.
In Q1, and Q2 on a pro forma basis.
Speaker Change: In terms of what in terms of revenue.
Speaker Change: Percentage of revenue. However, you. However, you said the 4% to 10% keeping on tablets.
Speaker Change: Thank you so that in the first quarter was close to 15%.
Speaker Change: In the second quarter was just over 12%.
Tyler Brown: Okay, so I think you alluded to it, but what is the ARPU differential?
Speaker Change: Okay.
Speaker Change: So I think you alluded to it but what is the <unk> differential between a spot move in a contract with just to help everybody understand.
Tyler Brown: between a spot move and a contract move, just to help everybody understand.
Amy Rice: Hi Tyler, it's Amy. So, there's a revenue mix component, and there's also a pricing component. Length of haul is a major determiner on the revenue mix component. So, say, Your contract business length of haul is an average of 200 to 250 miles and a spot opportunity that comes to the market is 500 miles. You would see roughly a 2x factor just for longer lengths of haul, in addition to which you would see pricing premium relative to contract pricing and the strength of that pricing premium would be affected by supply demand characteristics in the marketplace. So in a tighter market, you would expect that premium to be higher.
Hey, Tyler.
Speaker Change: So there is a revenue mix component and there is also a pricing component.
Speaker Change: Length of haul is a major determinant.
Speaker Change: The revenue mix.
So.
Speaker Change: Your contract business length of haul is an average of 200 to 250 miles and in.
Speaker Change: Spot opportunity that comes to the market.
Speaker Change: 500 miles you would see roughly at two X factor just for longer length of haul in addition to which you would see pricing premium.
Speaker Change: Relative to contract pricing and the strength of that pricing premium would be affected by.
Speaker Change: Supply demand characteristics in the marketplace.
Speaker Change: Tighter market, you would expect that to be higher.
Amy Rice: And in a weaker marketplace, you'd expect that premium to still be well ahead of contract rates, but not as strong.
Speaker Change: And in a weaker market place you'd expect that premium to still be well ahead of contract rates.
Amy Rice: Okay, interesting. So there is a cost to serve different. meaning it's more expensive to serve the spot because it's a longer length of haul. It's not necessarily a longer length of haul. It reflects what traffic needs to be moved quickly that isn't currently being moved by a contract carrier. So say in the event of a service disruption at a particular location, the contract carrier is trying to turn as much volume as they can, and they may well focus on the short haul moves to be able to do two turns a day. So there may be some longer length of haul traffic that needs to get pushed out to the stop.
Speaker Change: Not that strong.
Speaker Change: Okay interesting. So there is a cost to serve differential.
Speaker Change: Meaning it's more expensive to serve the spot because it's a longer length of haul.
Speaker Change: It's not necessarily a longer length of haul is it reflects what traffic.
Speaker Change: Needs to be now quickly that isn't currently being there by our contract carrier.
Speaker Change: Hey.
Speaker Change: Of a service disruption at a particular location the contract carrier is trying to turn as much volume as they can and they may well focused on the smart home is to be able to get two turns a day. So there may be some longer length of haul traffic.
Speaker Change: Rules to get pushed out to the spot market that's not in all cases.
Amy Rice: That's not in all cases, but you might expect.
Tyler Brown: Okay, basically I want to just look at this big picture because there's a lot of questions. Bye.
Speaker Change: Mike.
Speaker Change: Okay.
Speaker Change: Basically I want to just look at this big picture, because there's a lot of questions.
Speaker Change: Alright.
Tyler Brown: If there's such a big pricing differential in the spot market, were you driving a disproportionate amount of profit? last year in spot. And maybe I'll just ask it once. But it's the core business. If you exclude Spotting, you exclude Pro Fleet. And I'm sure that we'll talk about Pro Fleet. But is that core business better than 100-OR business? Yes, absolutely. It's just that total revenue is down so much because of the lower volumes overall, Tyler, that it just, you know, it makes, it removes a lot of the operating leverage. But the business itself is, you know, operates at a healthy.
Speaker Change: If there is such a big pricing differential in the spot market or where you drive a disproportionate amount of profit.
Speaker Change: Last year in spot and maybe I'll just ask it bluntly what is the core business. If you exclude spotting we exclude propylene and I'm sure that we'll talk about propylene, but is that core business better than 100 <unk>.
Okay.
Speaker Change: Absolutely.
Speaker Change: Total revenue was down so much because of the lower volumes overall filer that it just it makes it removes a lot of the operating leverage but the business itself.
Speaker Change: As operates at a healthy margin.
Tyler Brown: Okay, so hopefully we'll see that into the future.
Speaker Change: Okay. So hopefully, we'll see that into the future, but maybe just quickly on Q4, but what is low single mid digit sequence. A word you used on revenue just cases in the 2% to 5% or what are we thinking on Q4, and then you said or should improve but I mean, we're talking five basis points or five.
Tyler Brown: But maybe just quickly on Q4, well, what is low single mid-digit, I think was the word you used, on revenue? Is it 2% to 5%? Or what are we thinking on Q4? And then you said OR should improve, but I mean, we're talking, you know, five basis points or 500 basis points. Just any finer point would be super helpful. Thanks, guys. So on the low to mid single digits, I think two to five is a good range. in terms of O.R. improvement. I certainly don't think at that level of revenue that you should expect 500 basis points.
Speaker Change: 100 basis points of any finer point would be super helpful. Thanks, guys.
Speaker Change: So on the.
Speaker Change: Low to mid single digits I think.
Two to five is a good range.
Speaker Change: In.
Speaker Change: <unk>.
Speaker Change: Our improvement.
Speaker Change: I certainly don't think at that level of revenue that you should expect 500 basis points.
Brad Wright: You know, I think that, you know, again, depending on other cost factors and so on, that we might see 100, 150, maybe as much as 200 basis point improvement, but it's still going to be in the mid, probably a little higher than mid-90s, I would expect, if that's the revenue that ends up being generated. and that the spot mix stays roughly where it is. That's right and that could that could definitely be a very I'll hop back in.
Speaker Change: I think that.
Speaker Change: Again, depending on other cost factors and so on that we might see.
Speaker Change: 150, maybe as much as 200 basis point improvement, but it's still going to be in the mid probably a little higher than mid nineties I would expect if that's the revenue that ends up being generated.
Speaker Change: And then the spot mix stays roughly where it is today.
Speaker Change: That's right and that could that could definitely be a barrier.
Tyler Brown: Thank you.
Speaker Change: Okay I'll hop back in queue. Thank you. Thanks Bill.
Bruce Chan: Our next question comes from the line of Bruce Chan with Stiefel. Your line is now open. Thanks, Operator. Rick, Brad, Amy, good morning. So, you know, appreciate the commentary around the drag from the spot mix and, you know, a little bit of the volume headwind here.
Speaker Change: Thank you.
Next question comes from the line of Bruce Chan with Stifel. Your line is now open.
Speaker Change: Thanks, operator.
Speaker Change: Brad Amy good morning.
Speaker Change: Yes.
Speaker Change: So I appreciate the commentary around the drag from the spot mix and a little bit of the volume headwind here, but I want to maybe focus in on the propylene business because.
Bruce Chan: But I want to, you know, maybe focus in on the Pro Fleet business because, you know, when I look at the release and your comments, that business seems to account for, you know, really almost the entirety of the year-over-year revenue shortfall and, you know, also the gap with our, you know, previous model estimates. So, you know, maybe you can talk to us about what the issue was there, you know, the nature and status of that, you know, contract to customer relationship. And then, you know, assuming that you're in the process of putting up some guardrails around that business to make it, you know, less volatile, because I do remember that, you know, you got a big that to the upside in the first quarter, you know, what's sort of the status of that negotiation?
Speaker Change: When I look at the release and your comments that business seems to account for really almost the entirety of the year over year revenue shortfall in.
Speaker Change: Also the gap with our previous model estimate so may.
Speaker Change: You can talk to us about what the issue was there.
Speaker Change: The nature and status of that contract customer relationships and then assuming that you are in the process of putting up some guardrails around that business to make it less volatile because.
Speaker Change: I do remember that you got a bit to the upside in the first quarter.
Speaker Change: What's sort of the status of that negotiation and when do you think you can have this business repaired.
Bruce Chan: And when do you think you can have this business repaired?
Amy Rice: Morning, Bruce, this is Amy. The Q3 2023 quarter in our dedicated business was the highest level of revenue in the last seven quarters. So the comps were particularly high last year, and obviously we are particularly low this year, driving the major gap there. That does reflect the market. So this premium dedicated service plays its greatest utility when there's a need to get new vehicles to dealerships urgently, and therefore there's a willingness to pay that premium. on pricing to do so, as inventories have inflated, that demand component has lessened considerably. What I can tell you is that at current levels, we are running at essentially the minimum contracted level of movement.
Speaker Change: Good morning, Greg.
Greg: The Q3 2023 quarter and our dedicated business was the highest level of revenue in the last seven quarters.
Comps were particularly high last year, and obviously, we are particularly low this year driving the major gap there.
Greg: And that does reflect the market. So this premium dedicated service plays its greatest utility when there is a need to go.
Greg: New vehicle to dealerships for gently.
Greg: And therefore, there is a willingness to pay that premium.
Greg: On pricing to DSO.
Greg: As inventories have inflated that that demand component has lessened considerably what I can tell you is that at current levels. We are running at essentially the minimum contract Ed.
Greg: What level of land so.
Bruce Chan: So we've we've largely hit the bottom, if you will, in terms of what you can expect there on a go forward basis. And we started to see decline in November of 2023. So we begin cycling the declines here in Q4, and I would expect less volatility there as we go forward. If there's increased demand, you know, you could see some upside there, but I certainly wouldn't count. Okay, because I mean, I could be mistaken. But this seems to be, you know, the highest operating leverage business, you know, cost component. So, I guess, do you feel like this contract is good as is?
We've largely hitting the bottom if you will in terms of what you can expect there on a go forward basis.
And we started to see decline in November of 2023, So we begin cycling the declines here in Q4.
Greg: And I would expect less volatility there as we go forward.
Greg: There is increased demand.
Greg: Could see some upside there, but I certainly wouldn't count on that.
Speaker Change: Okay, because I mean it.
Speaker Change: It could be mistaken, but this seems to be the highest operating leverage business.
It can cost component. So I guess do you feel like this contract is good as is do you feel like you need more pricing or adjustment on it.
Amy Rice: Do you feel like you need more pricing or adjustment on it? I think we share your view that we would like to have better visibility to the volatility and demand in this stream of business. I think we are appropriately resourced against it at the current time such that it continues to be, you know, profitable and worthwhile to us. But to your point, it's a large driver in volatility and results, and we'd like to be able to to get a better forward look on.
Speaker Change: I think we share your view that we would like to have better visibility to the volatility and demand in Australia.
Speaker Change: I think we are appropriately resource against it at the current time such that it continues to be.
Speaker Change: Profitable and worthwhile to us but to your point, it's a large driver in volatility in results and we'd like to be able.
Speaker Change: To get a better smile.
Speaker Change: Yes.
Bruce Chan: Okay.
Rick O'Dell: Um, all right, just as a follow up, you know, maybe a broader question, you know, all for the most part, except for you, Amy, maybe been at the company now for about months. As you've kind of gotten into the guts here, is there anything that you see either to maybe the positive or the negative that, you know, changes your view of the fundamental earnings potential for the business?
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: A follow up maybe a broader question.
All for the most part except for you Amy maybe been at the company now for about two months as you've kind of gotten into the guts here is there anything that you see either maybe the positive or the negative.
Speaker Change: It changes your view of the fundamental earnings potential for the business.
Rick O'Dell: Yeah, well, this is Rick, I would say. in terms of the assessment, the market was was dramatically more volatile and weaker than we'd anticipated. but absolute confidence and validation of the, you know, the reception from customers to the enhanced network and, you know, the foundational initiatives that are investments that we've made to advance and control our initiatives going forward are absolutely on track. You know, we commented on the purchasing savings as being the first thing that would have an impact on margins, and, you know, we're probably 50% implemented there. from a go-forward basis that's kind of just taken place, so a high degree of confidence in that savings opportunity, which is targeted to be about two operating points, and that will occur regardless of the environment.
Speaker Change: Yes.
Speaker Change: I would say.
Speaker Change: In terms of.
Speaker Change: Of the <unk>.
Speaker Change: Estimate the market was.
Was dramatically more volatile and weaker than we'd anticipated.
Speaker Change: But absolute confidence and validation of the.
The reception from customers to the enhanced network.
Speaker Change: And and.
Speaker Change: The foundational initiatives that.
Speaker Change: Our investments that we've made to advance.
Speaker Change: And control our initiatives going forward are absolutely on track.
Speaker Change: We commented on the purchasing savings as being the first thing that would have an impact on margins.
Speaker Change: We're probably 50% implemented there.
Speaker Change: From a go forward basis, that's kind of just taken place.
Speaker Change: So hybrid high degree of confidence.
Speaker Change: And that savings opportunity, which is targeted to be about two operating points.
That will occur regardless of the environment.
Rick O'Dell: So again, we're absolutely confident that we're putting the framework together to have better business analytics and gain efficiencies going forward that we've targeted.
Speaker Change: So again.
Speaker Change: We were absolutely confident that we're putting the framework together to do to have better business analytics.
Gain efficiencies going forward that we've targeted.
Rick O'Dell: Bruce, I might just add to that, you know, we the one thing to on a real positive note is that we probably feel even better about our competitive position. and how we plan to grow through just market share gains than what we did on the road. So I think that's on the upside.
Speaker Change: Bruce I might just add to that.
Speaker Change: The one thing too on a real positive note is.
Speaker Change: We probably feel even better about our competitive position.
Speaker Change: And.
Speaker Change: How we plan to grow through market share gains and what we did.
So I.
Speaker Change: I think thats.
Bruce Chan: Yeah, and on the contract business, you know, which is more stable and, you know, we would like to enhance our reliance on that more stable business going forward. Okay, great, thanks. I'll hop back in queue. Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone.
Speaker Change: Upside.
Yes.
Speaker Change: On the contract business.
Speaker Change: Which we which is more stable.
Speaker Change: We would like to.
Speaker Change: Enhance our reliance on that more stable business going forward.
Speaker Change: Okay, great. Thanks, I'll hop back in queue.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question at this time. Please press star one wondering touchtone telephone. Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Ryan Merkel: Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Ryan Merkel: Thanks, everyone. I had a couple questions on 4Q. So it sounds like October, the volumes picked up a little bit. Curious if there was any reason why that was. And sorry if you said it, but did that continue in November? You know, I think it's a market rebound. Obviously, SAR was back over $16 million in the month of October. So, so yeah, I mean, the market has bounced off of the bottom. But to your question, we've not seen that continue in early November. We have seen a little bit of pullback on just daily run rates from where we were in the mid to late October time frame, which is why we remain cautious on Q4.
Ryan Merkel: Yeah. Thanks, everyone I had a couple of questions on for Q.
So it sounds like October.
Ryan Merkel: Volumes picked up a little bit.
Speaker Change: Curious if there was any reason why that was and sorry, if you said it but did that continue in November.
Speaker Change: I think it's a market.
Speaker Change: Rebound obviously.
Speaker Change: Saar was back over $16 million in the month of October.
Speaker Change: <unk>.
Speaker Change: So so def.
Speaker Change: The market has bounced off the bottom.
Speaker Change: Okay.
Speaker Change: But to your question, we've not seen that continue in early November we have seen a little bit of a pullback on just daily run rates from where we were in the mid to late October timeframe, which is why we remain cautious on Q4, we do expect some acceleration here as we move towards year end.
Ryan Merkel: We do expect some acceleration here as we move towards year end. but we would generally expect sequential acceleration through the quarter. Got it. Okay.
Speaker Change: But we would generally expect sequential acceleration through the quarter.
Rick O'Dell: Yeah, it's definitely choppy, so it's hard to make conclusions. This question might be hard to answer. I know the dealers have access to inventory. Do you guys have a take on how long it's going to take for that to whittle down? And, you know, won't the auto OEMs use incentives to try to clear that out here into year-end? We hope so. And I think with a rate cut this week, that's certainly conducive. We are starting to see more dealer incentives, and we would expect that to move some cars. And obviously, with new 2025 model-year cars being released, it should unlock some opportunity, but we are watching that just as you are.
Got it okay, yeah, it's definitely choppy so it's hard to make conclusions.
Speaker Change: This question might be hard to answer.
Speaker Change: I know the dealers has excess inventory.
You guys have taken.
Take and how long, it's going to take for that to Whittle down in.
Speaker Change: Won't the auto OEM to use incentives to try to clear that out here into year end.
Speaker Change: We hope so.
Speaker Change: And I think with a rate cut this week.
Speaker Change: Certainly conducive.
Speaker Change: We're starting to see more dealer incentives.
Speaker Change: Optimism harsh and obviously with near 2025 model year cars being released.
Speaker Change: It should unlock some opportunity, but we are watching not just FBR.
Rick O'Dell: Okay. And let me. Let me flip one more in. You guys mentioned you feel better about share gains in the contract business. I'm curious, are your competitors, you know, struggling quite a bit here, which is an opportunity for you? Maybe it's a little early to be seeing that, but do you feel like that's an opportunity as we think about, right, the next 12 months? I think what we are seeing is we have a more expanded offering or having really constructive conversations with customers who are looking for nationwide partnership opportunities. And so, you know, we're seeing growth opportunities in that regard.
Speaker Change: Okay.
Let me slip one more in you guys mentioned you feel better about share gains in the contract business I am curious are your competitors struggling quite a bit here, which is an opportunity for you maybe it's a little early.
Speaker Change: Are you seeing that but do you feel like Thats an opportunity as we think about the next 12 months.
Speaker Change: I think what we are seeing is we.
Speaker Change: Have a more expanded offering or having really constructive conversations with customers who are looking for nationwide partnership opportunities.
Speaker Change: And so we're seeing growth opportunities in that regard.
Rick O'Dell: I wouldn't comment specifically on competitors per se, but I do think the combined entity has a value prop that the market is responsible for.
Speaker Change: I wouldn't comment specifically on competitors per se.
Speaker Change: But I do think the.
Speaker Change: The combined entity has a value prop that the market is there still thank you.
Ryan Merkel: Thanks so much. Pass it on.
Alright, perfect. Thanks, so much and pass it on thanks.
Operator: Thank you.
Bruce Chan: Our next question is a follow-up from Bruce Chan with Stifel Yolanis Melk. Yeah, thanks for the follow up here. Um, you know, Brad, maybe just a question on capital allocation. You've made some nice improvements in the fleet, you've got ATG.
Speaker Change: Thank you. Our next question is a follow up from Bruce Chan with Stifel. Your line is now open.
Bruce Chan: Yes, thanks for the follow up here.
Speaker Change: Brian maybe just a question on capital allocation.
Speaker Change: You've made some nice improvements in the fleet <unk> got atg, but just given where the stock is trading right now it seems like you might have more of an opportunity to invest in your own company. Then then some M&A, especially given your comments about maybe hitting the bottom here. So just any thoughts on how you're thinking about capital allocation in general whether buybacks.
Brad Wright: But just, you know, given where the stock is trading right now, it seems like you might have, you know, more of an opportunity to invest in your own company than you know, than some M&A, especially given your comments about, you know, maybe hitting the bottom here. So just any any thoughts on how you're thinking about capital allocation in general, you know, whether buybacks is something that's entered the conversation. Yeah, Bruce, I think You know, look, we raised what we raised in the IPO with specific corporate uses in mind, and we've used those funds for that purpose, including the ATG acquisition.
Speaker Change: Is that something Thats I think the conversation.
Speaker Change: Yes, Bruce I think.
Speaker Change: Look we raised what we raised in the IPO what specific corporate uses in mind and we use those funds for that purpose, including the Atg acquisition.
Brad Wright: I think we still have a lot of opportunity. I'm not saying for acquisitions necessarily, but we have a lot of ways to improve the business over the long term that we feel is more efficient for long term holders than just going back into the market and whittling down our cash. So we've certainly discussed it. I just don't think that that's where our priority is.
I think we still have a lot of opportunity I'm, not saying acquisitions necessarily but we have a lot of.
Speaker Change: Ways to improve the business over the long term that we feel is more efficient.
Speaker Change: For long term holders, then then just going back into the market and literally biller cash so.
Speaker Change: We certainly discussed it I just don't think that that's where our priority is right now.
Bruce Chan: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you.
Tyler Brown: Our next follow-up is from Tyler Brown with Raymond James. You'll let us know. Hey, appreciate the follow up here.
Speaker Change: Thank you our next follow up is from Tyler Brown with Raymond James Your line is now open.
Speaker Change: Hey.
Tyler Brown: Hey, I want to actually come back to a question a little bit about the difficulty obviously in the auto markets. And I'm assuming that if you're running, call it circuit break, even there's a lot of small carriers that are also struggling out there. But have you guys heard or seen any anecdotes about capacity coming out of the auto hauling market? Is there any indication that things are tightening up on the supply side? I mean, we're not seeing anything specific that's occurring, but you would think that would occur with some of the weaker. weaker players that aren't as well capitalized.
Speaker Change: I appreciate the follow up here, Hey, I wanted to actually come back to a question a little bit about the difficulty obviously in the auto markets and I'm, assuming that if youre running call. It circa breakeven. There's a lot of small carriers that are also struggling out there, but have you guys heard or seen any anecdotes about capacity coming out of the Aloha.
Speaker Change: And market is there any indication that things are tightening up on the supply side.
Speaker Change: I mean, we're not seeing anything specific thats occurring but.
I mean, you would think that would occur with some of the weaker.
Speaker Change: Weaker players that aren't as well capitalized.
Tyler Brown: Anytime you go through a significant volatile period It gets negative after a stable period, and companies that have leverage, etc., you would think that they would be struggling.
Speaker Change: The time you go through significant volatile period.
Speaker Change: Gets negative after us a stable period companies that have leverage et cetera, you would think.
They would be struggling.
Tyler Brown: Yeah, I mean, we have such good information, some of the other modes of trucking, but not this particular mode. So I didn't know if you heard much, okay, but I kind of want to come back to kind of all of this. I mean, if you're running at call it a circa 98 OR, when pro fleet is running at minimum spots running less than 5%. I mean, this could be a very real reality for some time moving forward. And I know you talked about the 8 million of procurement savings, and I totally get that.
Speaker Change: Yeah, I mean, we have such good information some of the other modes of trucking, but not this particular mode.
Speaker Change: Alright heard much okay, but I kind of want to come back to.
Kind of all of this I mean, if youre running at call. It a circa 98 to one.
Speaker Change: When playfully is running at minimums spots running less than 5%.
Speaker Change: This could be very real reality for some time moving forward and I know you talked about the $8 million of procurement savings and I totally get that.
Brad Wright: But what other things can you do from a GNA perspective or just a broader overhead perspective to kind of re-stabilize the OR, you know, if those realities remain the realities? I'll start and Amy probably has some ideas too, Tyler. I mean, we're looking at all that, of course, because, you know, we can't be complacent on that front. And as we look to a plan for 2025, we're looking at every opportunity to cut where we can, although keeping in mind that we're not going to cut into operating capability. So it's really are we as efficient as we can be in terms of you know, personnel across the country, you know, we are combining benefit plans where we're, you know, through integration, there will be some costs that come out.
Speaker Change: But what other things can you do from a G&A perspective, or just a broader overhead perspective to kind of re.
Speaker Change: <unk> stabilized.
Speaker Change: Sure.
Speaker Change: If those realities remain the realities.
Speaker Change: Well.
I'll start and Amy probably has some might view as to Tyler I mean, we're looking at all of that of course, because we can't be complacent on that front.
Speaker Change: And as we look to.
Speaker Change: Our plan for 2025, we're looking at every opportunity to.
Speaker Change: Where we can although keeping in mind that we're not going to cut into operating capability. So it's really are we as efficient as we can be in terms of personnel across the country.
Speaker Change: We are combining.
Benefit plans were through integration there will be some costs that come out in <unk>.
Amy Rice: And, you know, I'll stop, but we're looking at everything.
Amy Rice: I don't know, is there anything else you'd add? Yeah, I would punctuate that just to say, you know, we are looking at how we realize the long term investment thesis. And so we certainly don't want to foreclose on that with short term cost cutting. So we are keeping operating resources in place to be able to move with a healthier market that we do anticipate, you know, resuming at some point. And I would also echo what Brad says there, you know, there's some some noise in our cost line currently as we're, you know, six months post transaction and doing a lot of work to drive integration, you know, to drive towards efficient processes.
Speaker Change: I'll stop or you kind of were looking at everything out on those or anything else you have.
Speaker Change: I would punctuate that just to say we are looking at how we realize long term investment thesis and so we certainly don't want to.
Speaker Change: We're close on that with short term cost cutting measures. So we are keeping operating resources in place to be able to nail with a healthier market that we do anticipate.
Speaker Change: Resuming at some point.
Speaker Change: And I would also echo what Brad said there.
Speaker Change: Some noise in our cost line currently as we're six months post transaction and doing a lot of work to drive integration.
Amy Rice: So besides just the hard costs that you would see in procurement contracts and those sorts of things, you know, there are also soft costs in the efficiency that will result. And I would just comment that filling some of these empty mile lanes with backhaul opportunities can be done regardless of the OEM environment. The data analytics that we're putting together will allow us to manage, you know, our mixed opportunities better, you know, putting our company assets on the appropriate business and removing, you know, suboptimal, Subhaul expenses. I mean, that is in process, and as our analytics improve, we can execute on that much better in the near term, regardless of the external environment.
Speaker Change: To drive towards efficient processes that besides just.
Speaker Change: The hard cost that you would see in procurement contracts and those sorts of things. There are also well costs in the efficiency that will resolve.
And I would just comment that.
Filling some of these empty mile lanes with backhaul opportunities.
Speaker Change: It can be done regardless of the OEM environment.
Speaker Change: And.
Speaker Change: The.
Speaker Change: The data analytics that we're putting together will allow us to manage.
Speaker Change: Our mix opportunities better.
Putting our company assets.
Speaker Change: On the appropriate business and removing suboptimal.
Speaker Change: Sub haul expenses.
Speaker Change: That that is in process and as our analytics group, we can execute on that.
Speaker Change: Much better.
Speaker Change: In the near term regardless of the external environment.
Tyler Brown: Yep, perfect.
Tyler Brown: All right. Thank you guys. I appreciate the extra time.
Speaker Change: Okay perfect Alright. Thank you guys I appreciate the extra time.
Operator: Thank you, and I'm showing no further questions at this time.
Thank you and I'm showing no further questions at this time I'd like to hand, the call back over to Rick O'dell for closing remarks.
Rick O'Dell: I'd like to hand the call back over to Rick O'Dell for closing remarks. All right. Well, thank you very much for your interest in Proficient Auto Logistics. We, again, remain very excited about the opportunities we have in the future to demonstrate our ability to generate very good returns for shareholders. Thank you.
Rick O'Dell: Alright, well. Thank you very much for your interest and proficient auto logistics.
Rick O'Dell: We remain very excited about the opportunities we have in the future to to demonstrate.
Rick O'Dell: Our ability to generate.
Rick O'Dell: Very good returns for shareholders.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Rick O'Dell: <unk>.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
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Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Yes.
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