Proficient Auto Logistics - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a record revenue quarter at $115.5M, up 21.4% q/q and 8.4% y/y, with total units up 28% q/q and 24% y/y; profitability improved sequentially (Adjusted Operating Income $3.8M; Adjusted OR 96.7%) but remains below prior-year levels due to lower revenue per unit and higher depreciation from asset step-up.
• Versus consensus, PAL posted a clear revenue beat (actual $115.5M vs $105.7M*), but missed on EPS (GAAP −$0.06 vs +$0.105*) and EBITDA (actual ~$10.0M* vs $11.4M*); the company and SPGI “actual” EPS differ due to normalization vs GAAP, which management did not present as non-GAAP EPS.
• Guidance signals seasonal softness in Q3: management expects ~25% sequential revenue decline but intends to maintain Adjusted OR despite lower volume; full-year 2025 revenue growth guided to 5–10%, with FY25 CapEx trimmed to ~$10M and free cash flow run-rate targeted at $30–35M after CapEx.
• Strategic execution themes: market share gains, Brothers integration complete, higher mix of company-delivered revenue (37%) aiding asset utilization; July SAAR 16.4M and tariff-policy clarity cited as constructive for demand stabilization and bid cadence resumption.

What Went Well and What Went Wrong

• What Went Well

  • Record quarterly revenue and sequential profitability improvement: Adjusted Operating Income $3.8M and Adjusted OR 96.7% (from 98.7% in Q1), driven by share gains and Brothers acquisition; “adjusted operating income … greater than the prior three quarters combined”.
  • Asset utilization improved: company-delivered revenue mix rose to 37% (35% in Q1; 32% in Q2-24), average weekly revenue per company driver +7% q/q; “integration of Brothers … gone smoothly” with common systems deployed.
  • Bid pipeline and contract renewals: retained important OEM contracts at flat-to-up pricing; Toyota Logistics Services 2025 Quality Award underscores service differentiation.

• What Went Wrong

  • Yield pressure: revenue per unit down ~3% q/q and ~13% y/y due to customer mix and fewer spot opportunities; dedicated fleet revenue fell to $3.8M (vs $7.3M in Q2-24).
  • Margin compression y/y: Adjusted OR worsened to 96.7% from 91.8% in Q2-24; Adjusted EBITDA margin fell to 9.8% (from 11.6% in Q2-24), reflecting lower RPU and higher D&A from asset step-up.
  • Near-term headwinds: management guides ~25% sequential revenue decline for Q3 despite stronger July; SAAR volatility and tariff/macro uncertainty continue to cap pricing power and spot/dedicated contributions.

Transcript

Speaker 5

Good day, and thank you for standing by. Welcome to the Proficient Auto Logistics second quarter financial information 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 one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one 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. Please go ahead.

Speaker 4

Good afternoon, everyone. I'm Brad Wright, Chief Financial Officer of Proficient Auto Logistics. Thank you for joining us on Proficient's second quarter 2025 earnings call. Under SEC rules, our Form 10-Q, covering the three and six-month periods ending June 30, 2025 and 2024, will 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 10-Q will not contain, pro forma financial data for the combined companies. However, our earnings release provided comparative summary combined financial information for the second quarter 2025 to the three-month periods ending March 31, 2025, and June 30, 2024, for the combined 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'll be discussing certain forward-looking information. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement in our earnings release describing factors that could cause actual results to differ from those expressed by the forward-looking statements. Further information can be found in our SEC filings. During this call, we may also refer to non-GAAP measures that include adjusted operating income, adjusted operating ratio, 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. 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'll provide a company update as well as an overview of the company's combined results for the second quarter. After our prepared remarks, we'll open the call to questions. During the Q&A, please limit yourself to one question plus one follow-up. You can 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 6

Thank you, Brad, and good afternoon, everyone. I'll start with an overview of our operations during the second quarter and some trends that provide insight into our expectations for the back half of 2025. First, as it relates to the second quarter, as we discussed in our last earnings call, the market strength we experienced at the end of Q1 continued into April, producing a record revenue month for the company, with revenue and unit volumes in the month up 13% and 25%, respectively, year over year.

While the market decelerated in May and June, auto saw a slowing to an average around 15.5 million units, and our expectations had been for sequentially decelerating performance in each month of the quarter, our unit volumes were bolstered by market share gains and the Brothers Auto Transport acquisition, such that June did not decelerate from May and revenue performance finished above our expectations. For the combined May and June months, volume finished up 24% year over year, while revenue was up nearly 14% versus the same period of 2024. The combined results produced a record revenue quarter for the company and improved profitability sequentially. Notably, the adjusted operating income for the second quarter was greater than the prior three quarters combined, demonstrating operational improvements and strategic execution in what has been an uncertain environment.

July auto sales and deliveries were stronger than expected, which was reflected in July SAR of 16.4 million as compared to industry forecasted expectations that were similar to what we saw in May and June of this year. While there's typically a seasonal aspect to July in which many OEMs elect to close plants for one or two weeks, many domestic plants have continued to operate to meet the higher demand for U.S.-based production. We're again pleased with Proficient Auto Logistics' July volume and revenue performance relative to expected levels. SAR forecasts remain cautious for the balance of the year. However, the economic impacts of tariffs and policy changes, both to our customers and the ultimate consumer, are becoming clearer with the announcement of trade agreements. We view both the removal of policy uncertainty and averted worst-case high-cost outcomes as a relative positive for the near-term go-forward.

Prior OEM shipping holds and delays in bid processes have returned to a more normal cadence with tariff policy resolution, which provides a more stable environment for us to go to market and benefits our ability to execute our strategy and achieve further meaningful margin improvements. Additionally, favorable tax policy for qualifying car loan interest deductions, a higher likelihood of interest rate reductions over the balance of the year, healthy dealer inventory levels, and an average age above historical norms for replacement represent factors that should support stable consumer demand. Proficient Auto Logistics remains focused on our long-term objectives, including continued increases in our market share and the effective integration of our merged operating companies, driving improved efficiency and profitability.

From a commercial perspective, there are several OEMs in the midst of scheduled regional or national bid processes, with a meaningful amount of new vehicle volume to be decisioned across the OEM landscape over the remainder of this year, giving line of sight to revenue levels that will allow for ongoing margin expansion efforts. In the quarter, we successfully retained a number of important OEM contracts at flat to up pricing levels. 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 being further validated in the marketplace. While automotive OEMs face cost pressure, as widely reported in their Q2 earnings releases, Proficient Auto Logistics is an important component in the transportation supply chain, and we will continue to partner with customers to serve their needs with industry-leading quality.

Our commitment to service excellence was recently recognized by Toyota Logistics Services with their 2025 Quality Award for finished vehicle logistics. I'd like to thank our team and channel partners for their efforts in achieving this award, even as we continue to integrate our companies and further strengthen our capabilities. The integration of Brothers Auto Transport, acquired at the beginning of Q2, has gone smoothly and is now largely complete, with seamless service for our customers throughout. All operating companies, including Brothers Auto Transport, are now using our common accounting platform and transportation management system, providing key visibility and actionable insights into our customer base, operating efficiency opportunities, and profitability. In the second quarter, we successfully shifted a higher portion of our volume onto company trucks, which will continue to aid profitability, as a majority of fixed costs support our asset-based business.

Sister hauls, or load-sharing between the merged companies, grew to 9% of revenue in the quarter from 8% in the prior quarter, reducing empty miles and further improving our asset utilization. As we look ahead, we have more work to do to control costs in a base market that continues to be weaker than expected coming into 2025. We'll further optimize new business added to the network as we move beyond the startup phase. While we evaluate our business on a composite and regional basis, we do have three of our seven operating companies already operating at a 90 blended adjusted operating ratio or better. We're in the process of advancing targeted cost savings initiatives and operating efficiencies that will bring the blended operation to that level over time, while preserving the ability to scale up via share gains and acquisitions.

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

Speaker 4

Thank you, Rick. I'll start with a few summary statistics. Prior year comparisons reflect the combined results of the five founding companies, but do not include amounts for Auto Transport Group or Brothers Auto Transport, which were acquired later. Operating revenue of $115.5 million in the second quarter was up 21.4% from last quarter and 8.4% higher than the second quarter of last year. Units delivered of 631,426 represented a 28% increase compared to last quarter and a 24% increase from the second quarter of 2024. Revenue per unit, excluding fuel surcharge, was approximately $171, down approximately 3% from the previous quarter due to customer mix, and down approximately 13% from Q2 of last year, reflecting the reduced proportion of spot and dedicated traffic in the quarters beginning in Q3 of last year and after.

Company deliveries were 37% of revenue in the quarter, up from 35% last quarter and 32% in the second quarter of last year, consistent with our stated objective to increase the volume we deliver on company assets. Our OEM contract business generated approximately 93% of total transportation revenue in the quarter, up from 91% last quarter. Our dedicated fleet service generated revenue of $3.8 million this quarter, compared to $4.3 million during the first quarter and $7.3 million in the second quarter of 2024. The dedicated fleet business has continued to generate approximately $4 million per quarter in the second half of this year. Revenue from spot opportunities during the quarter comprised only 2.7% of total revenue, continuing a trend that has persisted now for the last four quarters.

We expect spot and secondary revenue to remain a relatively small portion of our overall business through the second half of this year. The trend toward a higher percentage of deliveries on company assets continued during the quarter through a combination of moving available assets to geographic regions with higher demand and the addition of Brothers Auto Transport at the beginning of the second quarter, which operates predominantly through company deliveries. Utilization improvement was evidenced by a 7% increase in average weekly revenue per company driver in the second quarter compared to the first quarter of 2025. The company had approximately $13.6 million in cash and equivalents on June 30, 2025, up from $10.9 million at the end of last quarter. Aggregate debt balances at quarter end were approximately $90.2 million, with net debt of $76.6 million.

The increase from last quarter reflects our draw on the remainder of our term debt facility when the Brothers Auto Transport acquisition was closed April 1st, though we did use free cash flow to reduce the balance on our revolving credit line later in the quarter. Our expected equipment CAPEX for the full year of 2025 is approximately $10 million, most of which was incurred during the first half of the year. Our current annualized run rate for free cash flow from operations will be between $30 million and $35 million after CAPEX, which would represent an approximately 20% cash return on our current market capitalization. Additional CAPEX spending could be required in the event of large share gains awarded in the back half of the year, which would, of course, come with commensurate profitable revenue.

The strength of our balance sheet, which will allow us to invest with growth, is a differentiator in our industry. Total common shares outstanding ended the quarter at 27.7 million, up from 27.1 million at the end of last quarter. The increased share count was a combined result of shares issued in the Brothers Auto Transport acquisition and vesting of RSU grants made in connection with our IPO in May of 2024. Looking to next quarter, the third fiscal quarter is typically characterized by seasonal softness. Despite a stronger July than originally expected, August is showing the seasonally expected slowdown in revenue, and we expect a sequential revenue decline of between 2% and 5% compared to the quarter just ended. We expect to maintain adjusted operating ratio even on this lower projected revenue. For the full year, we now expect top line growth year over year between 5% and 10%.

Operator will now take questions.

Speaker 5

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

Speaker 2

Hey, thanks for the question and good evening, I suppose, everyone. Looks like a really good fundamental execution this quarter despite this still soft auto market. I think you alluded to this, Rick, in your prepared remarks about controlling costs in a base market. My question here is how much cost have you taken out? How much more can you take out, kind of exclusive of the market? What levers do you have to pull? I know you talked about the sister loads and the opportunity there. You talked about the company truck insourcing and the unified tech platform, but maybe some detail around how much you expect to be able to pull out, even if things kind of remain soft here.

Speaker 6

Yeah, we have some incremental opportunities that are targeted and, quite frankly, in process. They're really focused around procurement, consolidation of facilities, some personnel synergies, and then, of course, you know, empty miles over time as well.

Speaker 2

Okay, that's great. Super helpful. I imagine that sets you up pretty well for when the market does turn, as does Jack Cooper. Maybe just for my follow-up, now that you have a full quarter, close to a full quarter of that Jack Cooper business under your belt, share shifting still a little bit maybe. How do you think about what these volumes could mean for you and some of these cost savings could mean for you, especially as the market normalizes?

Speaker 6

We think there's still meaningful opportunity for margin improvements. It'll be a combination of share gains from organic growth, as well as cost reduction opportunities and synergies from our empty mile initiative. With three of our operating companies currently operating at much better margins, the regional markets where there wasn't a concentration of port type business and imported traffic, we saw more stability in the marketplace and our execution and operating margins is much better there. I think that validates the magnitude of the opportunity to still be able to operate in the 80s.

Speaker 1

Okay, another comment here, your question there. We entered two new markets this year, which had some startup cost and some field overhead to go into new markets. We have the opportunity to continue optimizing in those new markets as we now build around those new sort of anchor points. We'll pursue business that tie into those new markets that will continue to improve their efficiency and their profitability over time so that we can get more incremental margins on incremental business that come into those new markets as well.

Speaker 6

To clarify, to the extent we could grow business in our legacy markets, we won't be opening new facilities and hiring new supervisors. We'll be able to leverage the resources that we have in our network.

Speaker 2

Okay, yeah, that makes a lot of sense. Just to put a finer point on that, I'll turn it over. Around the roadshow, you all have talked about, I think, a kind of target midterm OR number, somewhere in the high 80s. Obviously, there have been some developments in the OEM auto market that probably push those out. If I were to think about a midterm number, however long it takes for the market to normalize, and layer on some of these additional cost saves and some of these additional levers that you've just laid out, do you think that you could now be getting a number better than that?

Speaker 1

I think our long-term or our midterm objective remains to get to a 90 or better OR to kind of move into the high 80s. We need to be more aggressive and assertive near term on cost control actions to start that step down in light of the market we're operating in.

Speaker 2

Okay, great. I'll hop back in queue. Thank you.

Speaker 5

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

Speaker 3

Hey, good afternoon.

Speaker 6

Hi, Tyler.

Speaker 3

Hey, maybe Brad, Amy, the volume looked really good. I am curious about the sequential deterioration in the yields per VIN. Can you just kind of parse out how much of that was core rate weakness versus maybe Brothers? I have a feeling maybe Brothers put some pressure on ARPU. Should we think about yields hanging around here for the rest of the year?

Speaker 1

Yeah, I wouldn't read it that way, Tyler. It really is just a portfolio mix of which customers moved more traffic in the quarter. If a given customer has a more locally concentrated traffic base, they would have a lower RPU, but maybe just as profitable versus a different customer that may have a higher average length of haul. We did see just a shift in the top 10 customers in the quarter and the proportion of who was moving. It was a customer mix issue.

Speaker 3

Okay. Length of haul can have a huge influence there. That's helpful. Rick, I want to unpack the bid market. It sounds like it's strong. It's improving maybe. I just want to be clear. The majority of those OEM contracts that you're talking about, that is volume that you currently don't move. That sounds like a possible market share opportunity. I don't know if this is the right way to look at it, but given everything, just kind of the craziness that's been going on out there, has the bid market been not so normal? Maybe there's going to be more go to bid in the market? I'm just curious about what's going on out there. Sorry, that's probably not a very good question, but hopefully you can get at what I'm getting at.

Speaker 1

I'll take that one. In a given bid, we typically have both incumbent traffic that we're seeking to renew, as well as the opportunity to bid on new traffic. What is changing a little bit is the degree to which OEMs are either gravitating towards their incumbent carriers for the bid activity versus more open-mindedness to share shift and new carriers in their bid processes. The current environment is one where our OEM partners are looking to optimize their transportation supply chain against a changing sort of production plan. They're looking to optimize cost and service. While we have got to defend on the incumbent side, you're right that there is a lot of market share potential opportunity to be gained. We're going after that business. We do see opportunity in this market, even though there is pressure in the OEM space.

Speaker 6

I would make one further comment on that just to express confidence in our analytical ability to mine those bid opportunities for network business. It's a fit for us and will meet our contribution margins.

Speaker 3

Okay, okay. Sounds like good opportunity out there. We'll wait and see. Brad, really quickly, if I can squeeze one in. I just want to be clear on the free cash flow comments. You're saying that you think that today, based on current EBITDA levels, you could generate somewhere around $40 to $45 million of operating cash flow, right? I mean, you're probably a limited cash taxpayer and a limited cash interest payer. That's kind of how we get from EBITDA to operating cash.

Speaker 4

Yeah, that was pre-CAPEX. When I take the $10 million out, that's where you get to that number. You're right.

Speaker 3

Okay, just wanted to make sure I understood that. Okay, thank you guys.

Speaker 5

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

Speaker 0

Hey everyone, thanks for the question. I wanted to follow up on the price question. I have it down kind of 16% per price in Q2. Can you help us with what you're thinking for Q3 and Q4? Are we going to stay in this range or do you think it might get a little better from here?

Speaker 1

I think on a relative basis, if you're looking year over year, we should start to see that delta compress. The reason being, you'll remember when we reported our third quarter earnings last year, that was really when we started to see the softness in the spot market. The dedicated business came down pretty precipitously, and that had a large impact on RPU. We've seen stabilizing since then, and I think you'll continue to see the RPU stabilize.

Speaker 0

Got it. Okay. The unit growth, I think it was up 24% year over year. That's a pretty good number. You must be taking a lot of market share. Can you put that, you know, 20%+ type unit growth in some context for us?

Speaker 1

Yeah, so there are really three buckets that comprise our volume growth in the quarter. A large portion of it is Brothers. Brothers has performed well in its first quarter in the portfolio, roughly in line with and/or slightly ahead of our expectations. We're really pleased to have them as part of the footprint and the team. The second large component is a full quarter of the new market share gains. We've continued to see performance there that's in line with the expectations that we guided. The third component, to somewhat of a lesser extent, would just be organic and/or share growth in the base markets. That's where we'd like to see additional growth coming from the market. We've not seen as much as we were hoping for coming into 2025. There is some lift there, particularly quarter over quarter.

Speaker 0

That's helpful. Okay. Did you say that you expect the OR in 3Q to be in the same range as 2Q?

Speaker 1

Yes.

Speaker 0

Okay. All right. Thanks all. Pass it on.

Speaker 4

Thanks, Ryan.

Speaker 5

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

Speaker 2

Yeah, thanks for the follow-up here. Brad, you talked about the cash position being pretty strong. Balance sheet is within range of your target. You've had some nice incremental deals in the last year. I know you mentioned the potential for some CapEx acceleration later this year if new bids pan out, but maybe you could just give us an update on how you're thinking about additional M&A philosophically. Is that something that you're still keeping your eye on?

Speaker 4

I think, as we've said in the past, Bruce, we'll always have conversations ongoing, and that's something that will be kind of a constant. I don't know that I would say there's anything imminent. We're looking at basically the cash flow coming from just organic operations. CapEx would only happen if we had big bid gains. You're going to see debt balances coming down over the second half of the year. There's nothing in the immediate future that would impact that.

Speaker 6

We are continuing to mine for the right opportunities in the pipeline.

Speaker 2

Okay, great. That's helpful. Thank you.

Speaker 5

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

Speaker 6

All right. Again, we're pleased with the, certainly with the revenue growth and the market share gains that we were able to achieve, and obviously some improving execution. We're not satisfied with the cost structure that we currently have in the somewhat volatile market, and we're continuing to advance those initiatives aggressively. Continue to improve margins kind of regardless of the external environment. Thanks for your interest.

Speaker 5

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