Proficient Auto Logistics, Inc. (PAL) Earnings Call Transcript & Summary

Thanks for joining us this afternoon. I'm Brad Wright, Chief Financial Officer of Proficient Auto Logistics. We're glad you could be with us for Proficient's Third Quarter 2026 Earnings Call. Our earnings release came out earlier today, and it provides a detailed look at our third quarter 2026 financial results. It's available on our website, proficientautologistics.com, under the Investor Relations section. After our 10-Q is filed, you'll be able to find it in the Investor Relations section of our site as well, and a refreshed investor deck is being posted there too, accessible through Investor Relations. During this call, we'll be covering some forward-looking information. What I'm sharing represents how we see things right now, and it shouldn't be treated as a promise about what will happen down the road. I'd point you to the cautionary language included in our earnings release, since it lays out the factors that might make actual results come in different from what our forward-looking statements suggest. You can find more details in the filings we make with the SEC. During this call, we might also mention non-GAAP measures, such as adjusted operating income, adjusted operating ratio, EBITDA and adjusted EBITDA. Take a look at the relevant sections of our earnings release, where we explain how each of these non-GAAP financial measures is calculated and show a reconciliation of those profitability measures against the closest comparable GAAP measures. Rick O'Dell, Proficient's Chairman and Chief Executive Officer, and Amy Rice, our President and Chief Operating Officer, are joining me on today's call. They'll give a company update and walk through the company's combined results for the third quarter of 2026. Once our prepared remarks are done, we'll open the line for questions. In Q&A, please keep it to 1 question plus 1 follow-up. If you have more questions, you can rejoin the queue. I'd now like to bring in Rick O'Dell for opening comments.

Thanks, Brad, and good afternoon, everyone. Before we go further, I want to take a moment to remember Louis Adkins, who co-founded Hanson and Atkins and served as an invaluable adviser during the merger of our two companies, and who passed away late last month. Louis devoted over 60 years to the Auto haul industry and leaves behind a wonderful, lasting legacy that we are proud to continue. I also want to express appreciation to the Proficient team, our drivers, owner operators, and third-party carrier partners for what they did and contributed this quarter. Those efforts were especially important as we continue integrating the Hanson and Atkins businesses into the Proficient platform and continue making progress toward long-term profitable growth and shareholder value. Early integration has gone very well, and we’re eager to walk you through the details. In Q3, we saw a mix of steady underlying demand alongside ongoing cost and capacity pressures. Margins took a hit from pricier fuel, driver, and maintenance costs, plus fuel recovery that trailed and contractual pricing that hadn’t caught up with today’s market conditions. Meanwhile, driver and carrier constraints across the industry kept us from fully meeting available demand. Even so, those same capacity limits are helping create better pricing conditions, and we’re acting decisively to boost profitability via pricing and fuel recovery, disciplined capacity deployment, tighter cost management, and bringing Hanson and Atkins together. Even though these actions haven’t yet shown up fully in our results, the progress we’re making gives us a clear route to better margins and stronger cash generation as we head toward 2027. To begin with, underlying vehicle production and demand for proficient services are still healthy. At the same time, tighter regulation and improved economics in general trucking have reduced driver and carrier capacity in auto haul, which limits our ability to capture additional volume. A large portion of our business runs on long-term contracts that were negotiated back when operating costs were lower and capacity was easier to come by. Consequently, current pricing and fuel recovery haven’t kept up with the higher costs we are facing. With capacity this tight, we see a chance to raise prices as contracts come up for renewal, and it also pushes us to revisit some agreements ahead of renewal so rates better match today's market. We're acting decisively to lift profitability and put the business in a position for stronger performance. First, we're working closely with our OEM customers on the heavier steel costs and the slow pace of surcharge recovery. In recent months, six customers have made changes that improve cost coverage or shorten recovery delays, but a few of those are temporary and haven't been enough to offset the material hit to margins. Beyond that, we're seeking pricing that delivers sustainable returns and stepping in where contract economics are still inadequate. For the contract business renewed from September 1 onward, roughly $25 million in volume is seeing weighted average pricing up just over 10%. And finally, we're positioning the portfolio so that available capacity can be deployed into business earning acceptable returns, which raises company fleet utilization and strengthens our cost control. Combining Hanson and Atkins is another meaningful near-term opportunity to boost earnings and drive long-term growth. The combination expands our fleet and driver base, increases market share, and improves our ability to serve customers through a broader, denser network. In the first 90 days of ownership, we made significant integration progress while maintaining continuity across the business. Normal business hasn't skipped a beat — our essential customers, staff, and operational workflows are all functioning well. Eleven integration work streams are being carried out by our team so we can realize the value and advantages envisioned in the deal, and we're still on schedule to finish integration in all material respects by Q1 2027. Meanwhile, as we speed up the coming stage of integration, we increasingly act and present ourselves as a single company to both our customers and the market. Crucially, the greater scale we now have is beginning to produce real operational efficiencies and savings. Here are a few illustrations of how that plays out. We're putting more and more freight through the Proficient, Hanson and Atkins network combined, and that's helping us cut empty miles, boost utilization, deliver better service to customers, and grab extra freight using shared capacity. We're seeing up to 900 units a day moving on a sister haul basis among Proficient operating companies — enhancing and Acton — up from about discount on a weekly basis at the start of September, and it keeps growing. We're spotting these opportunities faster as operating territories integrate, and beyond the efficiency and service gains, this is bringing in incremental revenue at a run rate above $0.5 million a month as we head into the fourth quarter. Additionally, we are making our maintenance network available to both fleets, which provides Proficient enhancement and access to 20 combined shop locations, helping to reduce out-of-service time. A shared fleet and maintenance system is now operational across both companies, and uniform preventive maintenance and safety inspection schedules have already been implemented at all fleets and shop locations. We are using our combined scale in insurance, fuel and other purchasing programs. For instance, we have enhanced fuel discounts with each of the respective providers while broadening in-network fueling access for all drivers; we are starting to consolidate insurance programs, which is producing modest near-term savings, higher coverage limits and a multiyear path of improved risk mitigation and better than market pricing. We are seeking further savings opportunities throughout the business. What we're seeing here are initial illustrations of what this combination can deliver in terms of value. Our integration efforts have led us to pinpoint a synergy opportunity totaling between $20 million and $30 million — well beyond the $6 million to $10 million range we shared when the deal was announced. By the end of this year, we anticipate reaching the upper bound of that original range. Head count realignment and procurement savings represent the primary drivers, and a full year of benefit from those will come through in 2027. On top of that, we anticipate an additional $5 million to $10 million in synergy opportunity during 2027, stemming from resource and portfolio optimization, real estate, insurance and other SG&A spend consolidation. Looking ahead, once our integration efforts are fully matured across '28 and '29, we anticipate an extra $5 million to $10 million stemming from further optimization and automation gains, plus the enhanced value proposition we're now able to offer the market. Although we see conditions in the market improving, the payoff from our pricing moves and integration work has only begun to show up in our results, and the pickup in these efforts — and the corresponding outcomes — will start coming through more substantially in 4Q and particularly as we move into 2027. Our attention is on the levers within our control, such as pricing, better fuel recovery, savings from integration, rigorous cost discipline and getting more productivity out of our network. Beyond that, we've constructed a more robust platform overall so we can take advantage of better market conditions — including a larger fleet we own ourselves, an enhanced proposition for carriers, wider geographic reach, and increased network density. Thanks to these capabilities, we can respond more nimbly and serve customers dependably, while staying selective about the freight we take on and making sure our capacity delivers a sensible return that funds long-term investment and creates value for shareholders. Fully reflecting these steps in our results will take time, yet we think they offer a clear route toward better margins, cash generation, and profitability across 2027 and 2028. With that, I'll hand things back to Brad to go over the financial results for the quarter.

Thanks, Rick. Our third-quarter results reflect ongoing pressure from fuel costs that remain at historically high levels. Those costs were not fully offset by customer surcharge programs, even though we made progress on pricing and integration. The quarter also includes an initial contribution from Hansen and Adkins. As a reminder, the third-quarter results capture only about half of the quarter, because the transaction closed on August 13. Future quarters will reflect the full results that Hanson and Adkins contribute. For the third quarter of 2026, we will share some metrics that size the partial-quarter impact of Hanson and Aon. Going forward, however, we will report only on a consolidated basis as the portfolios become increasingly integrated. Hanson and Adkins, along with the MCL Miguel Canadian operations, brought in about $51 million in revenue during Q3. Taken together, consolidated revenue for the third quarter reached $149 million, a 30.3% increase from the same period last year—however, comparable revenue from the Proficient business fell 15.7%, which reflects both lower capacity and some sluggishness in plant and port traffic across the portfolio during that quarter. Units delivered by Hanson and Atkins in Q3 came to 320,011, while consolidated total units delivered were 839,036, up 38.6% year-over-year, even though comparable Proficient volume declined 14.3%. Revenue per unit at Anthem and Adkin, excluding fuel, stood at $139. Consolidated revenue per unit excluding fuel was $155—and here's an important note on revenue per unit. Hanson and Atkins run roughly 130 miles on average per haul, while the rest of Proficient's portfolio averages 150 miles. Revenue per vehicle generally tracks distance, so bringing Hansen into the portfolio pulled ARPU down this quarter. We anticipate additional customer-mix pressure in Q4, since Hansen and Atkins will be with us for the entire quarter. That shouldn't be read as weaker pricing on comparable freight — we actually expect rates to get better there. Third-quarter adjusted EBITDA came in at $7.9 million, versus $11.9 million in Q3 of last year, which reflects the big hit from fuel under-recovery and timing lag. Capital spending on equipment stayed fairly modest this quarter. We spent under $5 million, mostly on the Hansen and Adkins fleet, and that reflects the scheduled fleet refresh that's been going on since the middle of 2025. For the rest of this year, we expect to spend roughly $5 million as well, based on deliveries already committed. At the same time, both operating companies are selling equipment, which is reducing the count of older, underused units — especially since current driver levels don't warrant keeping extra equipment around. If SAAR grows only modestly next year, we're looking at about $20 million in CapEx for the whole company in 2027. That level keeps our fleet's average age inside the target range and still lets us keep selling older units. As we explained in August, buying Hanson Atkins involved a major restructuring of our debt. We sold $75 million in face value of convertible notes with a 5.5% coupon and a seven-year maturity. Because these notes mature further out, the company has room to carry out the strategic rationale behind our recent combination, and we avoided the heavy dilution that issuing more common stock in a secondary offering would have caused. When this debt comes due, we'll be able to settle it with cash, stock, or a mix of both — that gives us a lot of room to maximize shareholder value depending on how things look at the time. We also brought most of our equipment financing together under a single syndicated facility with total capacity of up to $120 million. At the close of Q3, roughly $100 million had been drawn on it. An additional $12 million in equipment financing, mostly with legacy lenders tied to the Bagel Canadian business, was still outstanding at quarter end. Finally, we're nearly finished combining our operating lines of credit across both companies. That facility replaces the old term debt arrangement and the associated credit line that the legacy Perficient business had, and it gives us access to as much as $75 million, with availability driven largely by how much customer receivables we carry. As of September 30, senior secured debt stood at about $140 million, and once you add the convertible notes, gross debt comes to roughly $213 million. We finished the quarter with cash of approximately $12 million, which puts net debt at a little above $200 million. Trailing pro forma EBITDA was just under $50 million, so net leverage came in at around 4x. We think we can get that level down fast by putting extra cash flow first toward the operating line, plus roughly $8 million a quarter of scheduled amortization on the equipment line. Under our base plan for 2027, we expect to produce cash flow that goes to debt reduction, and with EBITDA rebounding, net leverage should fall under 3x by the close of Q3, with gross leverage under 3x by year-end. At quarter-end, 28 million shares of common equity were outstanding; buybacks under our authorized repurchase plan came to 98,801 shares at an average price of $5.56. Since the plan began in February, total shares repurchased stand at 181,678. We might keep doing opportunistic buybacks under the program when we can, since we think our stock is trading at a price that's well under a fair estimate of intrinsic value. We'll weigh those chances against what the business needs for capital. and our goal of making the balance sheet stronger. Going forward, what we're focused on is integrating the combined business, delivering the synergies we've identified and producing free cash flow, with near-term emphasis on bringing leverage down. Money we deploy will go mainly toward targeted equipment replacement; still, because driver supply has shrunk, we've managed fleet age by speeding up disposal of older units and taking on fewer new ones. We have no plans to add capacity absent suitable customer commitments and expected returns. Looking toward the fourth quarter, demand is holding up well given the wider economy, but several operating challenges from the first 3 quarters will likely continue. In particular, unusually high fuel costs, driver-related expenses, and capacity limits. So, with holiday effects in Q4, we usually see comparable revenue come down sequentially from Q3. Including our first full quarter of owning Hansen and Atkins, revenue for the fourth quarter should land between $180 million and $195 million; operating ratio should improve sequentially by 50 to 100 basis points, assuming fuel keeps pressuring margins, and adjusted EBITDA margin should improve modestly. I'll hand the call to Amy Rice, who can give more detail on our Q3 operational performance.

Thanks, Brad. Rick laid out the wider market dynamics. I'll go into more detail on how those conditions are hitting our operations, what we're doing about them, and where we see chances to boost performance. Let's begin with fuel. Our surcharge recovery programs are set by the automotive OEMs, not by Proficient, which sets us apart from most transportation markets; we have close to 20 fuel programs across the portfolio, and since each carries different provisions, calculation methods and recovery structures, the effect of higher fuel prices on recovery goes beyond just the lag between when fuel pricing is calculated and when recovery is paid to us versus when we bear the expense. The way the fuel surcharge program plays out now makes profitability look very different between individual customers and individual locations, and things get worse when hauls are longer, load factor is lower, there are empty miles, or fuel costs in a region exceeded the national average. Because of that, certain contracts that were profitable before fuel — as they were earlier this year — no longer are. Our estimate is that under recovery of fuel pushed our third quarter operating ratio up by 2 to 2.5 percentage points. As Rick mentioned, we're engaging customers throughout our base to improve coverage of fuel costs and to reduce the effect of surcharge adjustments trailing changes in fuel prices. We've achieved a lot of small wins along the way, but the gap is still a big one. Unless we see meaningful further gains in recovery and fuel prices eventually come back down, we think substantial fuel pressure will stick around — which is why better pricing, running more efficiently and capturing synergies matter even more right now. Past fuel recovery, we're going after wider improvements in contract rates to offset higher costs and to align better with where the market stands today. On contract renewals, we expect pricing gains of at least mid-single digits, and we anticipate a larger share of spot market mix than in recent years. We're also pushing for — and already gaining from — temporary incentives and/or adjustments to certain contracts that sit well below market. Because drivers and subhaulers typically get compensated as a share of revenue, freight priced well under market won't generate enough pay in the current environment to draw and keep capacity, so changes are needed to maintain supply chain continuity. Keep in mind that roughly one-third of our portfolio gets rebid annually. Therefore, beyond the usual market renewal cycle, we're pursuing a number of steps to enhance economics. In cases where current rates sit below market, capacity is tight, and customers require service stability, we're obtaining targeted increases in the middle of contracts, frequently at two to three times typical renewal levels; together with customers, we're striving to boost economics at the lowest 20% of our portfolio contract locations by profitability, among them sites whose profitability is impaired by fuel. When we can't find economics that work, we'll help move that business elsewhere and shift the capacity over to freight that pays. Because we can't see any return to normal fuel prices on the horizon, we need to react in real time to how heavily fuel is weighing on us. We're working with customers to forecast the volume they'll require, and with surgeons who care about service, we've locked in short-term rate incentives that brought extra capacity into the market. Together with spot opportunities across our broader network, we figure roughly 7% to 12% of the volume we're moving is benefiting from rates that exceed contract levels. Our expanded, more concentrated geographic footprint is bringing in additional spot freight. Contract talks also benefit from a firmer spot market, because customers prefer reliable contract capacity—even at a nominally higher price—over the cost and trouble of constantly scrambling for unpredictable inventory coverage. Turning to operating performance: service improved steadily in the third quarter as the market cleared the backlog left by the spring surge in demand, and plant and port closures in late summer helped move the market toward balance. After the deal closed, as the advantages of Sister halls and a shared regional management setup began to take effect, the typical count of cars awaiting transport has fallen by over 10%, while the volume of inventory ready to be moved has risen by about 15%. The mix of company drivers in the third quarter, which includes the 7 weeks during which Hanson and Atkins were owned, came to roughly 46% consolidated, a 10% increase compared with a year earlier. That mirrors expansion from both the greater share of company drivers that comes naturally with the Hanson and Atkins portfolio and better driver productivity within the existing proficient portfolio. Even though inflation and fuel costs are squeezing margins in the company driver segment, more of any price increases we earn flows through, so there's a bigger chance to improve margins by executing better on utilization and repricing. To capture that chance, we need to bring in and keep productive drivers while only sparingly cutting unproductive ones, so the company segment performs at its best, and at the same time keep dependable owner operator and carrier capacity in the sub haul segment — both of which are still difficult in today's environment. Regulatory pressure, along with a long stretch of weak returns and climbing costs, has driven drivers and carriers out of the market and made it tougher for newcomers. Fuel under recovery only adds to that pressure. Independent truckers and outside transport providers face the same pressures, which squeeze their profit margins and cash flow while pushing still more capacity out of the market. To tackle these issues, we're bringing our recruiting operations together and redistributing how our fleet is allocated throughout our network. Our recruiting programs have brought in more drivers, yet turnover stays high because drivers are departing for other areas of trucking that provide fast wage growth. We're likewise matching our fleet to the count of productive drivers we anticipate having over the coming 6 to 12 months; we're divesting older equipment without assigned drivers in order to lower average fleet age and upkeep requirements, while bolstering driver safety and productivity via incentives and correcting performance that falls short of acceptable standards. In addition to our work with company drivers, we're reinforcing our network of third-party carriers. Even with the strain on these providers and the courts looking closely at how brokers and carriers work together, we're gaining traction when it comes to bringing on additional qualified third-party carriers. We're also expanding our contractual relationships with third-party carriers already working with us, so that those agreements now cover more Proficient operating companies. During the last 30 days, we signed contracts with over 200 new third-party carriers. Actions are underway to boost earnings through pricing and fuel recovery, better utilization of resources, network efficiencies, and savings in maintenance and procurement, all supported by disciplined freight selection. Synergies from the transaction are beginning to accelerate, both financially and operationally. We've restructured the company so that talent is spread throughout the unified network, and as integration of our systems and processes moves forward, it reduces complexity as well as oversight and administration while allowing for stronger accountability. We remain confident about what combining our companies delivers for employees, customers and investors. Turning to 2027, current SAR expectations point to demand that is fairly stable in 2027, while industry capacity that keeps tightening supports the more favorable pricing outlook. Against that background, we expect enhanced synergies and our self-help efforts to generate meaningful margin improvement of at least 3 points of adjusted operating ratio in 2027, with the potential for additional improvement if and as fuel prices come back to more normal levels. If fuel conditions were normalized, we'd anticipate getting back that margin of roughly 2 to 2.5 points as well. Even with that, our expectation of clear business progress doesn't hinge on fuel getting better, and we have a multiyear route to improving margins that gets us to the low 90s OR objective. At this point I'll return the call to Rick for his closing remarks.

Thanks, Amy. I'll wrap up with a handful of important points. Clearly, the results we posted for the third quarter fell short of what we had expected. The steps we're now taking, we believe, are putting the business in position for meaningful improvement and stronger performance over the long term. We're tackling pricing and fuel recovery, becoming more disciplined about how we deploy capacity, and moving fast to capture the benefits of combining Hanson and Atkins; we expect the fourth quarter to remain a transition period, with many of these actions only starting to show up in our results. As we head into 2027, we expect those benefits to build, and we've identified a significantly larger synergy opportunity from Hanson and Atkins. Pricing conditions are turning more constructive now that industry capacity has tightened, and we see meaningful opportunities to improve utilization and efficiency across our combined network. Our priorities are straightforward: execute against these opportunities, improve margins and cash generation, and strengthen returns across the business. The platform we have built, we believe, gives us a clear path to drive substantially better earnings performance and enhance value for shareholders over the next several years. We intend to show that progress quarter by quarter. I'd like to set out some longer-term margin expectations that reflect what we expect from this enhanced organization as we move forward. For 2027, we're targeting an OR in the range of 95% to 97%, reflecting enhanced synergies and pricing. For 2028, we're targeting an OR in the range of 92% to 94% as we keep benefiting from our enhanced market position, repricing contracts, and achieving our targeted synergies. Through all of this work, safe, reliable service and disciplined capital allocation will continue to guide our decisions. I want to thank our employees and our carrier partners for their commitment, our customers for their continued partnership, and our shareholders for their support. Operator, we're ready to take questions.

Thanks for the thorough update on synergies. Could you perhaps walk us through what makes up that incremental synergy target? And Brad, I might have missed this, but of the $20 million to $30 million in 2027, how much should we assume you'll actually realize?

We expect it to enter 2027 at a $10 million run rate, and then we expect to capture another $5 million to $10 million across that year, so we'll get a partial year of that next $5 million to $10 million.

All right, let's put it at somewhere in the low double digits in millions.

Right.

All right, and Amy, where does the spot mix stand right now?

I'd describe today's spot mix as, once again, beginning to move within that 7% to 12% range.

All right. So things have clearly gotten better. Okay.

It isn't solely about transparency — Hampton and Atkins runs a logistics operation that plays mostly in the transactional arena. So that too helps push a bigger share into the spot market.

All right. So I'd like to revisit the pricing conversation a bit; I think it's fairly clear that margins aren't where you'd like them to be. From what I hear, the bottom 20% of contracts are, shall we say, a fair way from acceptable. It sounds as though roughly 1/3 comes up each year, you'll be tackling out-of-cycle contracts, and you're redoing all of your surcharges. So should we expect 10-plus percent pricing over the coming year? And if not, why not?