Proficient Auto Logistics Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 9, 2024

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Proficient Auto Logistics 2nd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer 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.

Operator

Please go ahead.

Speaker 1

Good morning, everyone. I'm Brad Wright, Chief Financial Officer of Proficient Autologistics. Thank you for joining us on our Q2 2024 earnings call. Under SEC rules, our Form 10 Q, which we expect to file early next week, covering the 3 6 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. We are not required to provide and the Form 10Q will not contain pro form a financial data for the Q2.

Speaker 1

However, our earnings release provides comparative summary unaudited combined financial information for the Q2 for the 5 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 1

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 GAAP measures such as operating earnings and earnings before income taxes or net income. Joining me on today's call are Rick O'Dell, Perficient's Chairman and Chief Executive Officer and Randy Beggs, our President and Chief Operating Officer.

Speaker 1

We will provide a company update as well as an overview of the company's combined results for the 2nd quarter. After our prepared remarks, we will open the call to questions. During the Q and A, please limit yourself to 1 question plus one follow-up. We may you may get back into the queue if you have additional questions. Now, I

Speaker 2

would like to introduce Rick O'Dell, 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 Q2 and some trends that provide insight into our expectations for the back half of twenty twenty four. I'll follow that with some exciting news about a strategic addition to Perficient 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.

Speaker 2

It is large enough to meaningfully increase our scale, 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 Q2. As we discussed in our last earnings call, 2nd quarter unit volumes and related revenue started off very strong in April May with year over year revenue up approximately 11% for that 2 month period. June, however, slowed considerably with unit volumes 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 2

There is a seasonal aspect to July as many OEMs elect to close plants for the week of July 4. And depending on the environment, some even take the opportunity to shutter the plants for a 2 week period. This year, you can add to that the CDK global software outage at the end of June that slowed sales volumes during strong holiday week. In keeping with the trend we're observing, many of the major auto manufacturers have used their 2nd 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.

Speaker 2

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. 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 9 net new contracts in 24 through the end of May. An additional 5 new contracts were acquired during June July. In addition, there were 3 contracts renewed with significant expansion of allocated lanes.

Speaker 2

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 market place. 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 we're enthusiastic about the prospect and we're enthusiastic about the prospect of adding them to the existing foundation of Perficient Auto Logistics. Just to give you an idea of the scale they'll add to our platform, ATG controls a fleet of over 100 vehicles with approximately 80% of those being company owned.

Speaker 2

Equipment has an average age of about 5.5 years, which is consistent with the existing fleet at Perficient. Employee base is approximately 80 personnel with roughly 75% being drivers. 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.

Speaker 2

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

Speaker 1

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 $106,600,000 in the quarter was an increase of 5 0.8%. Adjusted operating ratio improved from 92.7% in the Q2 of 2023 to 91.8% in 2024.

Speaker 1

This was also an improvement from 93.2% in the Q1 of this year. Adjusted operating income was $8,700,000 in the most recent quarter, up 19.4% from $7,300,000 in the Q2 last year. The adjusted profitability measures add back the impact of stock compensation expense resulting from RSU grants made concurrent

Speaker 3

with our IPO, which are

Speaker 1

expensed over the vesting period and is is amortization of intangible assets resulting from the acquisitions of the founding companies. Amortizable intangibles consist primarily of trade names and customer relationships, which you could expect to add approximately $2,000,000 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. Following up to 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. The recent trends experienced in June July have prompted us to reassess the outlook for the second half 2024.

Speaker 1

We are now expecting sequential quarter revenue growth in the mid single digits for the 3rd quarter with adjusted operating ratio that is consistent with last quarter. The 4th 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 4th quarter. The adjusted operating ratio is expected to improve by 50 to 100 basis points sequentially in the 4th quarter. As it relates to the balance sheet, the company had approximately $36,000,000 of cash and equivalents on June 30, 2024.

Speaker 1

Aggregate debt balances at quarter end were approximately $55,000,000 for net debt of $19,000,000 Our fleet plan calls for approximately $20,000,000 of growth CapEx during the remainder 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 5 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 2 times EBITDA. Total common shares outstanding are currently 26,100,000. As disclosed in a Form 8 ks filed earlier this morning, we expect to issue approximately 1,000,000 shares in connection with the acquisition of ATG.

Speaker 1

Operator, we will now take questions.

Operator

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

Speaker 3

Thank you, operator, and good morning, guys. Some exciting results here. 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 lower auto volumes and OEM activities.

Speaker 3

But it looks like maybe there were 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?

Speaker 2

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, 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, the revenue per unit was actually up about 3% on our contractual business.

Speaker 3

Okay. That's super helpful. And then just turning to the operating ratio, certainly a much faster OR improvement than we've been modeling. And just maybe you want to dive into that a little bit. What are you seeing there as far as levers?

Speaker 3

I know you talked about some of the synergies, but 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 few months here?

Speaker 2

Yes, 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. We have a little bit of benefit from purchasing synergies on fuel, but we've only had that for about 1 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 in terms of sharing freight and minimizing backhaul opportunities, which were the ones we anticipated being able to move most quickly on.

Speaker 3

Okay. That's great. And then maybe Yes. Sorry, go ahead.

Speaker 4

I was just

Speaker 2

going to say that the major operating improvements are still ahead of us.

Speaker 3

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?

Speaker 2

So we have 4 of the 5 implemented and we've actually intentionally delayed the 5th of the companies to kind of simplify the integration with the implementation of the new accounting system. So but we're very much on track to take all of the implementations.

Speaker 1

Bruce, the accounting system and the 5th company on the TMS are scheduled to happen on October 1.

Speaker 3

Okay, great. Appreciate that color.

Operator

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

Speaker 5

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. Can you give us the assumptions you're making about what you'll see in August September? Did you sort of extrapolate what you saw in July?

Speaker 5

Or are you thinking it might be a bit of improvement?

Speaker 1

I think there's going to be improvement in the last 2 months of the quarter, Ryan, because 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, I believe.

Speaker 5

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?

Speaker 1

It's a combination of seasonality. And 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 5

Got it. Good point. Okay. And then you mentioned the CDK issue. Can you quantify that?

Speaker 5

Was that an impact in the quarter? And is it better now? Just a little color on that would be helpful.

Speaker 1

I think short answer is no. I don't we can't really quantify that. But 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 the that was part of the issue. And that just kind of backs everything up.

Speaker 5

Yes, makes sense. All right. Thanks for the time. Pass it on.

Operator

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

Speaker 6

Hey, good morning guys. Can you hear me?

Speaker 2

Yes. Sorry. Good morning.

Speaker 6

Hey, just Brad, I just want to before we get into the Q and 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 be really on the predecessor. Is that right? But by the time we report Q3, we should be getting a full P and L cash flow balance sheet operating metrics with the release. Is that correct?

Speaker 1

That's right, Tyler. What you're going to see in the Q we filed, probably Tuesday next week, is you're going to get to the combined quarter end balance sheet. You'll have a full GAAP 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 quarter. So it's a little bit of a confusing presentation, frankly.

Speaker 6

Right. But by Q3, things should kind of level out

Speaker 1

for everybody out there.

Speaker 4

Correct. Okay. That's right.

Speaker 3

Very helpful.

Speaker 6

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?

Speaker 6

Yes.

Speaker 2

I mean, they were kind of one of the funnel opportunities and then they were actually marketing the company. So caused us to want to move quickly because it's such a great fit.

Speaker 7

Okay. Okay. That's helpful.

Speaker 2

So we have a we obviously have a pipeline of opportunities. But again, this one was such a good fit and such a great management team operating very well. So as you know, one of my key priorities when you make an acquisition is, 1st priority is don't mess it up. They're operating well, kind of leave them alone. So it's not going to require a lot for us to absorb them into our network.

Speaker 2

We'll continue to advance our key priorities and it just enhances our coverage area and the quality of our group.

Speaker 6

Okay. Okay, perfect. Yes. And I would assume this one will also move on to the TMS?

Speaker 2

Yes, they will.

Speaker 6

Okay. And then they have a

Speaker 2

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.

Speaker 6

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 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?

Speaker 7

Yes. So just the last 4 weeks, we were able to do 352 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 3 52 backhauls that aided in creating density and reducing empty miles and enhancing obviously the revenue on those trucks.

Speaker 2

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 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 manually.

Speaker 6

Okay. Okay. So more on the come there?

Speaker 2

Correct.

Speaker 7

Absolutely.

Speaker 6

Okay. And just my last one here. I'm kind of curious what 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? Thanks.

Speaker 7

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. 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 5 companies coming together.

Speaker 6

Okay. All right. Thanks guys. Appreciate it.

Speaker 1

Thanks, Tyler.

Operator

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

Speaker 4

Hi, guys. Thanks for letting me sneak one in here at the end. 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 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 just orders of magnitude how big it was on a pro form a basis in the most recently completed year?

Speaker 4

You

Speaker 1

can talk to what it is, I can do the numbers.

Speaker 7

Yes. So what it is, is we have a contract for a specific number of trucks in the dedicated fleet that guarantees that that number of trucks will be revenue producing in terms of that contract regardless of the volumes or the impact on the economics. It ebbs up and down as the OEMs 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 backed 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.

Speaker 7

And then as volumes come back up and the ground counts increase and 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.

Speaker 1

To your point on the or your question on the numbers, Alex, I mean, in 2023, in the Q2, 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 Q1 of the year as well. So even while we've had a pretty sizable all 6% increase in total revenue in Q2, the dedicated fleet business is literally down by half.

Speaker 4

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 software, you've done the fuel contract, software, you've done the 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 5 founding companies, specifically since in terms of what systems have been where we are in that process essentially? Thank

Speaker 7

you. Sure. I'll give you a high level because I could talk an hour about it. But first of all, it's system integration, 4 of the 5 companies are now on the TMS. 5th one is scheduled to go live October 1.

Speaker 7

We could have done that earlier, but we are turning on October 1st also the finance system so that all 5 companies will be on the finance system. It made sense to hold the last operating system rather than have to do the integration with their old finance software and then 3.5 weeks later flip it over to the new software. So we've made this decision just to hold their TMS transition at 3.5 weeks to ease the finance system transition. The we have fully integrated the brokerage group and test them on not only creating business but also focusing on backhaul. The 2 New Jersey companies are operating as several of the departments we've merged together already.

Speaker 7

On the West Coast, we've actually consolidated a couple of the locations down to 1. And we've also done some additional software integration with the 5 companies 10th Street, supervision, just to name a couple of them. So multiple mergers of software, we're beginning to merge some of the locations and we've begun to consolidate some of the departments within certain companies and certain locations.

Speaker 2

The collaboration has been very good and is producing some results. So we're happy to see it.

Speaker 4

Absolutely. Sounds like you 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 the stuff is going to come over the next year or so, year to 18 months, I think you said in the press release.

Speaker 7

Correct.

Speaker 4

Thanks, guys.

Speaker 2

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

Speaker 4

Great. Well, thank you very much guys.

Speaker 2

Thank you.

Operator

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

Speaker 3

Great. Thanks for the double dip here. 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 the potential impact there, especially on the East Coast.

Speaker 3

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?

Speaker 1

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

Speaker 7

No. No? No.

Speaker 2

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

Speaker 3

Okay. Yes. But you wouldn't see any okay. But you wouldn't see any associated benefit to pricing, for example, as customers need to divert maybe to different geographies?

Speaker 7

Yes. There could be an opportunity there for the creation of overflow with the necessity for them to divert to different locations.

Speaker 2

Yes, and pay spot rates.

Speaker 7

Pay spot rates on it, yes.

Speaker 3

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. The plan that you're talking about now, that's the kind of original $3,000,000 in annualized savings that you talked about last quarter, and that's on the company fleet.

Speaker 3

Does that include any opportunity there to roll out that fuel program to the sub hauler fleet? And if so, what could the timeline or the impact look like there?

Speaker 2

Yes, we're exploring that, but we don't that would require some incremental technology and process implementations for us to do that and but the savings are potentially material probably go up by at least 50%.

Speaker 3

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

Speaker 2

It would be.

Speaker 3

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

Operator

Okay. Thank you. This concludes the question and answer session. Thank you for your participation. This does conclude today's conference call.

Operator

You may now disconnect.

Speaker 2

I have one more comment if you don't mind.

Operator

Sure.

Speaker 2

So just in terms of commenting on the accretion from the ACG acquisition, I guess the way to look at it because we've really talked about it on an annualized basis is 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 accretive by about $0.25 So just to give you some scale, what the impact of the accretion would be. That's all I had. Thank you very much for your interest.

Operator

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

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Key Takeaways

  • Proficient reported Q2 operating revenue of $106.6 million, up 50.8% year-over-year, with adjusted operating income rising 19.4% and the adjusted operating ratio improving to 91.8%.
  • Revenue growth was strong in April and May (+11%), but June and July saw volume and yield headwinds—driven by seasonal OEM plant closures, weaker spot move demand, and a CDK software outage—resulting in flat or down monthly revenues.
  • The company expects to close the acquisition of Auto Transport Group next week, adding over 100 vehicles (80% company-owned), ~200,000 annual auto deliveries, and approximately 8% incremental revenue with immediate EPS accretion.
  • Updated guidance forecasts sequential revenue growth in Q3 in the mid-single digits with stable margins, and Q4 growth in the low double digits with a 50–100 bp improvement in adjusted operating ratio, aided by seasonality and a full quarter of ATG.
  • Integration efforts are underway—consolidating fuel purchasing, unifying TMS and finance systems, capturing new OEM contracts, and optimizing backhauls—to drive additional cost synergies and revenue density.
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Earnings Conference Call
Proficient Auto Logistics Q2 2024
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