Proficient Auto (PAL) Earnings Call Transcript

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DATE

Monday, February 9, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Richard O'Dell
• Chief Financial Officer — Bradley Wright

TAKEAWAYS

• Revenue Growth -- Reported revenue increased by 11% as stated by management, reflecting expansion in both core and acquired operations.
• Revenue per Unit -- CFO Wright described average revenue per unit as "very stable" following significant volatility over the prior twelve to sixteen months.
• Spot Market Exposure -- Management indicated "very little spot opportunity in the current market," and classified any resurgence as potential upside.
• Cost Savings Initiatives -- Significant cost savings are expected from health care and insurance program consolidations, with the health benefits changes beginning January 1, 2026, and insurance consolidation effective August 2026.
• Headcount and Facilities Reduction -- The company executed restructuring actions late in the year, reducing headcount and exiting a physical location, which are anticipated to yield incremental cost savings in 2026.
• Claims Expense Impact -- CFO Wright stated the fourth quarter included an accident with a liability reserve hitting the full $500,000 retention, directly affecting operating ratio.
• Operating Ratio (OR) Guidance -- Management expects a 150 basis point improvement in operating ratio for 2026, driven primarily by cost savings and productivity enhancements.
• Capital Allocation Priorities -- CFO Wright affirmed that debt reduction remains the top priority, with merger and acquisition flexibility available, while share repurchases are "probably at the lower end of the priority list."
• M&A Pipeline -- There is one active acquisition under consideration, with an annual expectation of one to two acquisitions consistent with prior statements.
• OEM Contract Dynamics -- Management reported contract gains in several new locations offset by the loss of certain incumbent sites, indicating a disciplined focus on rate and profitability.
• Volume and Pricing Outlook -- The company expects flattish core volumes and revenue per unit for 2026, but anticipates growth from market share gains rather than overall market improvement.
• Insurance Structure -- The company has increased its self-insurance retention to reduce premiums, introducing greater quarterly claims expense variability.
• Asset Utilization Strategy -- Management is shifting revenue from subcontracted hauls to company drivers, which is expected to improve operating ratio by 300-400 basis points for company-delivered moves versus subhaul.
• Brothers Acquisition -- Management confirmed that the revenue benefit from the Brothers acquisition will cycle through for one more quarter.

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RISKS

• CEO O'Dell directly stated, "the market environment was challenging in 2025," with weak seasonality in November and December contributing to revenue and volume shortfalls versus internal expectations.
• CFO Wright highlighted, "very little spot opportunity in the current market," signaling limited upside from higher-margin spot freight unless conditions tighten.
• Management warned of ongoing aggressive carrier pricing, noting competitors are accepting rates "below a threshold that we think represents healthy reinvestment."
• The company absorbed a $500,000 reserve for a single liability claim in the fourth quarter, exposing earnings volatility under the current self-insurance structure.

SUMMARY

Management confirmed an 11% revenue increase, emphasizing disciplined capital allocation and continued focus on debt reduction. Strategic consolidation of benefits and insurance networks is projected to deliver meaningful cost savings and a 150 basis point operating ratio gain in the coming year. While core volumes and pricing remain flat, leadership expects organic revenue improvement through market share gains and operational efficiencies. The Brothers acquisition will provide a final quarter of incremental benefit before fully cycling. Management is actively pursuing additional M&A, with one transaction currently in process.

• Leadership signaled a shift toward maximizing company-owned fleet utilization for improved margin, with company-delivered shipments expected to outperform subcontracted hauls by several hundred basis points on operating ratio.
• The fourth quarter earnings were negatively impacted by seasonally weak volumes and an extraordinary claims expense, both of which management expects to be nonrecurring.
• Management reported that "meaningful" open bids were both awarded and lost during recent contract cycles, citing a strict focus on profitability and a readiness to capitalize on service failures by lower-bidding rivals should those opportunities re-emerge.
• CFO Wright affirmed ongoing flexibility to pursue strategic acquisitions, supported by balance sheet improvement, while maintaining conservative share repurchase activity.

INDUSTRY GLOSSARY

• Operating Ratio (OR): A key efficiency metric for transportation providers, calculated as operating expenses divided by operating revenue; lower OR indicates higher margin performance.
• Spot Market: The segment of freight and logistics business transacted at market rates for immediate shipment, typically reflecting greater pricing flexibility and volatility compared to contract business.
• M&A: Mergers and Acquisitions; refers to corporate strategies involving the purchase or combination of companies to drive growth or expand capabilities.
• SAAR: Seasonally Adjusted Annual Rate; a metric describing total new auto sales projected on an annualized, seasonally adjusted basis.
• Subhaul: Freight movements completed by subcontracted or third-party carriers, as opposed to using company-owned fleets and drivers.
• OEM: Original Equipment Manufacturer; in this context, auto producers who are principal customers for auto transportation and logistics services.

Full Conference Call Transcript

Bradley Wright: You know, the third-party carriers that we are using are those who choose to participate in our freight very regularly. The folks who choose to participate in our break more episodically would not have opportunities for dispatch in this volume environment. So to the extent that some of those French players may be exiting the market, not only for us but in general in the auto haul space, that will be felt. When there is a surge and a need for capacity that is no longer there.

Richard O'Dell: Okay. And maybe this is a question for all three of you. But do you think that rates will be up in '26? Ex fuel.

Bradley Wright: So you are asking about revenue per unit. Correct. I think we should be stable, largely stable on a revenue per unit basis. We have significant volatility in our RPU over the course of the last, call it, twelve to sixteen months as we were cycling the reduction in spot traffic and dedicated traffic. The level where we are now, we are very stable from an ARPU perspective.

Richard O'Dell: Okay. And then my last one, just real quick. Brad, obviously, it sounds like cash flow should still be good into twenty-six. How should we think about prioritizing capital allocation between M&A, debt pay down, and even repurchases? Is that even a possibility? Thank you.

Bradley Wright: Yeah, Tyler. I think the priorities will be largely as they have been, which is, you know, to continue paying down debt. Now we made significant progress there as I highlighted over the last year, particularly the last three quarters. And so that does give us some flexibility and some dry powder to the extent that, you know, an M&A opportunity came along, for example, you know, we have got a lot of flexibility to use cash or to take on additional leverage or however we might choose to approach that.

But I think, you know, just on a recurring quarter in, quarter out basis, I would expect us to continue to strengthen the balance sheet first and, you know, again, we never rule out share repurchases, but that is probably at the lower end of the priority list at this point.

Richard O'Dell: Okay. Alright. Thank you very much.

Operator: Our next question comes from the line of Bruce Chan with Stifel. Your line is now open.

Bruce Chan: Hey, good afternoon, everyone, and thanks. Maybe just to focus a little bit more on the revenue mix and the pricing. You all mentioned a couple of things that work there with the absence of spot opportunity in the competitive market. I guess, first on the spot side, Rick, you mentioned a few of the kind of points of optimism this year just around the age of the consumer fleet. Any kind of tax rebates, refunds. How do those kind of factors play out through the spot versus contract opportunity? How much are you kind of embedding in your outlook for flat revenue per unit?

And then maybe on the competitive front, just to address that, I guess I am a little surprised that given the cost trajectory in the business, carriers are still pricing so aggressively. So maybe any more detail on what you are seeing in that competitive environment there?

Richard O'Dell: Yeah. So, on your first question, with respect to what our expectations are for the spot market or what it would take to see the spot market recovery. I mean, I think as the market tightens, and inventories tighten, then you see there is more of a sense of urgency for delivery of vehicles. You know, that gets maybe presold or if inventories get low and demand is high, then you know, then you see more spot moves. So we just take a healthier demand environment to kind of get a recovery in the spot market.

Bradley Wright: Yeah. Rich, from my perspective, at this point, any spot opportunity is upside relative to where we have been over largely the last year. So there is very little spot opportunity in the current market. I do not expect there to be a meaningful amount of spot opportunity in the market that we foresee in the near term. But to Rick's point, any tightening that would introduce that opportunity would represent upside.

Richard O'Dell: Or driver shortages for other, you know, competitors that have contracts. Right? If they cannot handle their contract business, then it goes to the spot market.

Bradley Wright: And then to your question on OEM pricing, you know, what we are seeing is there is an impact on the OEM side of that equation. And there is an impact on the carrier side of the equation. On the OEM side, as we have seen in recent earnings releases, peaking large impairment charges around EV investments, and coming off of a year where they bore a significant portion of tariff expense. The OEMs are looking to improve their performance in 2026. And so they have got really stringent cost mandates in place for their procurement departments. And that is what we are seeing in the OEM environment.

On the carrier side of things, we are seeing a lot of carriers with underutilized capacity for the amount of volume that they are carrying is lesser than they would like to be carrying. And it is resulting in carriers bidding at rates that in many cases, are below a threshold that we think represents healthy reinvestment. And so we are having to show discipline about what we are willing to pursue, what we are willing to defend, and when we walk away, because we do not think that rate level is sustainable in the market over a, call it, three-year price term.

Bruce Chan: Okay. Great. Yeah. That is super helpful. And then maybe just, you know, for a final question here, you know, you mentioned the insourcing and the cost control programs. I think we are a little more than a year and a half or so post IPO. Any updates that you can share with us on progress there, any new opportunities that you may have identified?

Richard O'Dell: Well, you know, some of the big ones that have now gotten a lot of traction or that will kick in the first quarter. Then we the consolidation of all of our health care programs. That will kick in or did kick in 01/01/2026. Consolidation of our insurance programs, liability, and cargo damage, etcetera, in August is also something that we expect to see result in cost savings during 2026. You know, the early on stuff has now kind of cycled at this point. The water, oil, and the gas programs, the spare parts, that kind of stuff. You know? And we continue to push on that. And see, you know, marginal improvements there as well.

But I think it is the insurance and benefits that will kick in the largest portion of the savings in twenty-six. One other comment I would make there, Bruce, is as we move into new vendors and new programs, there is a sort of flushing out of old contracts and prior expense. And so there is some doubling up in the system during that transitional period. And as we move forward, we do see opportunity to just take what I would describe as transitional and integration costs out of the system over time.

Richard O'Dell: I guess the other thing that I failed to mention is, you know, we did some restructuring late in the year last year that reduced some headcount, and also got us out of one physical location that will actually create additional savings in twenty-six.

Bruce Chan: K. Great. Thank you. Thank you.

Operator: Our next question comes from the line of Alexander Paris with Barrington Research. Alex, your line is open.

Alexander Paris: Hi. Thank you. Thanks for taking my question, guys. So I have just a couple of questions. First, I think a point of clarification. The market share gains and the Brothers acquisition, we still have one more quarter of a benefit before it cycled through. Did I get that right?

Richard O'Dell: For Brothers, yes. On the market share gains, that was during the first quarter, so less of an impact there.

Alexander Paris: Okay. Gotcha. And then on the organic front, and I am going to finish with M&A. On the organic front, you said you had said last quarter that there are still a number of OEM contracts that were awaiting awards. And at that time, just like this time, you said that some contracts you walked away from due to pricing and so on. I was just wondering if we can get a little update on the color of contract awards, either during the fourth quarter or prospectively.

Bradley Wright: Sure. Hi, Alex. We did see several open bids sort of matriculate to the award stage over the last couple of months. And what I would describe is puts and takes. We did pick up some new locations in a number of customer accounts. We also lost some incumbent locations in those same customer accounts. Again, by virtue of rate dynamics, and where the late stages of negotiation went. With respect to rates and profitability. So net, we are pleased with where we ended up. But in a more disciplined environment, we would like to grow our business as well as gain new markets. In the current environment, we are having to make some hard choices.

With respect to incumbent business. As we pick up some new markets. As we look ahead, there are a number of what I would describe as they are not national and headlining bids. But there are a number of active bids just in the ordinary course of the business. That will play out here over the first and second quarter. We continue to see opportunity to bid on new traffic. And our customers are still acclimating to our broader network and data capability. And we are having much more meaningful discussion with customers about what we can do across a wider swath of their network. So we are encouraged and optimistic about our opportunity to pick up some new business.

Alexander Paris: Great. That is helpful. Then too, anecdotally, and without mentioning the OEM, I had heard a fairly large contract was awarded last year. And you stepped away due to pricing. But I have heard that same OEM is coming back and rebidding some lanes because some of these smaller carriers that bid real low are having service issues. Have we been seeing those kind of things this year? I know you said earlier that it will usually end up in spot, but the absolute, you know, rebidding of certain lanes seems to have happened much sooner than they typically do.

Bradley Wright: So you bring up an interesting point. And it is one that we think about. So as we get into the late stages of a negotiation, you ask yourself, would I rather be the carrier that wins this business at a rate that I am not entirely confident I can deliver or would I rather be the carrier waiting in the wing if the guy who wins it cannot entirely deliver? And we have made some of the latter in terms of our choices. So to your point, we do think that there is some business that has been awarded that may ultimately come back to market.

And we have tried to position ourselves in a way our customers know we have got capacity, we have got interest, and we are available to support in the event that they have service disruption.

Alexander Paris: Great. That is helpful. And then my final question, I will finish on M&A as I said I would. You know, given the weak market, given the weak SAAR, given pricing pressures and service delivery challenges. Would you ex maybe you can give us a little update on the M&A pipeline? And do you expect to make acquisitions in 2026?

Richard O'Dell: Yeah. We continue to develop a pipeline. We have one that we are, you know, actively engaged on. So I would expect that we still would expect to maybe do one to two acquisitions a year.

Alexander Paris: Right. Which is in line with what you had said at the IPO time, and it is actually what you have delivered over the last twelve months or so.

Richard O'Dell: Correct.

Alexander Paris: Right.

Alexander Paris: Alright. Well, thank you. I will get back in the queue.

Richard O'Dell: Alright. Thanks. Thank you.

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

Ryan Merkel: Hey, everyone. Thanks for the question. I want to start on 4Q. The OR missed I think, your expectations, and I just want to be clear on why that happened. Sounds like it was the core revenue was a little bit weaker than you thought. What was the core revenue in 4Q? And was the weakness just the November and December seasonality come back as you thought?

Richard O'Dell: Yes. So on the revenue front, when we guided at the last quarter, we kind of gave a range of where we thought 4Q would end up. In the end, it ended up a few million shy of what we had anticipated. That reflects a November and December that did not come to fruition the way seasonally it typically does. So yes, we saw some weaker volume and general there that would have been contributory. From an OR perspective. But there were some specific drivers in the quarter, which Brad could talk about.

Bradley Wright: Yeah. So we referenced in our commentary that we had elevated claims expense. So when we consolidated our insurance programs, we got a significant reduction of premium, but we also took on a little more retention or self-insurance. And as a result, we do expect that there will be a little more volatility or subject to it anyway. And we had one accident in the fourth quarter where we did have to basically reserve up to our full retention amount. And so that had an impact on OR for the quarter. And we would not expect that to recur in Q1.

Ryan Merkel: How big was that, Brad?

Bradley Wright: Well, the full retention that we have on our liability is a half million dollars, and we reserved all of that.

Ryan Merkel: Okay. Alright. And then the twenty-sixth guide, let us start with revenue. Just want to make sure I heard it right. So I think you said you do not expect any help from the market. So talk about what you expect from the market. I think you will have one point of M&A that will carry over. You said flat pricing. You are thinking a couple of points of volume. Am I understanding that right?

Bradley Wright: You are kind of breaking up a little bit, but I think the point is we do not expect general core market volumes to be higher than 2025, and pretty flattish revenue per unit as well. So but we do still expect that we will be able to generate some increase in our overall full-year revenue through market share gains. As Rick mentioned, we will always be, you know, looking at strategic additions as well, but we do think that we have got some optimism around market share gains that would push our revenue up organically anyway.

Ryan Merkel: Okay. So it sounds like mid-single-digit revenue in '26 is in the ballpark.

Richard O'Dell: Well, just from the organic market, I would say, you are probably a little high. But that is it is hard to say this early in the year.

Ryan Merkel: Yeah. Get it. Okay. And then on the OR improvement, 150 basis points. Is that just all cost saves and can you tell us how much in dollars you have for cost saves in '26?

Bradley Wright: Yeah. So I think most of that would be most of it is cost savings, of course, to the extent that we push revenue higher, we get some fixed cost leverage as well.

Richard O'Dell: And a meaningful portion of that, Ryan, as well is, you know, the ongoing initiative to shift more of our revenue base from the subhealth segment into the company driver segment. We get better asset utilization of our fleet. And we think that on an apples-to-apples basis, the OR on a company-delivered move is as much as 300, 400 basis points better than on a sub haul note. So we do expect to see progress there, which on the one hand is cost-driven, but on the other hand is how we operate.

Ryan Merkel: Right. Okay. Very helpful. Thanks.

Operator: Thank you. This concludes the question and answer session. I would now like to hand the call back over to Richard O'Dell for closing remarks.

Richard O'Dell: Well, obviously, the market environment was challenging in 2025. Like I said in my opening comments, certainly pleased with the execution of our employees dedicated to providing quality service in a challenging environment. And, you know, I think what we did demonstrate in 2025 is that our collective network is attractive to our customer base. You know, we grew revenue at 11%. And, you know, as we continue to mature our network, and focus on our cost initiatives, we got a high level of confidence in our ability to improve our operating margins.

And in the meantime, cash flow is strong, balance sheet is improving, and you know, we like where we are positioned in the marketplace, but we just need the marketplace to be a little bit better. And I think there are some sort of green shoots out there that could indicate certainly the second half of 2026 can be better. So we are looking forward to that.

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

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