Item 1. Business
Item
1. BUSINESS
Business Overview
We
are a leading specialized freight company focused on providing auto transportation and logistics services. Formed in connection with
the IPO through the combination of five industry-leading operating companies, we operate one of the largest auto transportation
fleets in North America based upon information obtained from leadership of the Auto Haulers Association of America, utilizing roughly
1,145 auto transport vehicles and trailers on a daily basis, including approximately 845 Company-owned transport vehicles and trailers,
and employing 671 dedicated employees as of December 31, 2024. From our 50 strategically located facilities across the United States,
we offer a broad range of auto transportation and logistics services, primarily focused on transporting finished vehicles from automotive
production facilities, marine ports of entry or regional rail yards to auto dealerships around the country. We have developed a differentiated
business model due to our scale, breadth of geographic coverage and embedded customer relationships with leading auto original equipment
manufacturing companies (“OEMs”). Our customers include nearly all of the global auto manufacturing companies, including
General Motors Company (“General Motors”), Bayerische Motoren Werke Aktiengesellschaft (“BMW”), Stellantis N.V.
(“Stellantis”), and Mercedes-Benz among others. Additional customers include auto dealers, auto auctions, rental car companies
and auto leasing companies.
Description
of the Combinations
On
December 21, 2023, Proficient Auto Logistics, Inc. entered into agreements to acquire in multiple, separate acquisitions five operating
businesses and their respective affiliated entities, as applicable: (i) Delta, (ii) Deluxe, (iii) Sierra, (iv) Proficient
Transport, and (v) Tribeca. On May 13, 20 24, the Company completed its IPO of its common stock, and in connection with the
closing of the IPO, the Company also completed the acquisitions of all of the Founding Companies. The Founding Companies were acquired
for approximately $178.5 million in cash and 6,978,191 shares of our common stock (provided, that 541,866 of these shares of common
stock were held back and were not issued at the closing of the Combinations to satisfy the indemnification obligations of certain of
the Founding Companies for a period of twelve months following the closing of the Company’s IPO), using an initial public offering
price of $15.00 per share. The Combinations are accounted for as business combinations under ASC 805. Under this method of accounting,
Proficient Auto Logistics, Inc. is treated as the “accounting acquirer.”
Proficient
Auto Logistics, Inc. has been identified as the designated accounting acquirer (“Successor”) of each of the Founding Companies
and Proficient Transport has been identified as the designated accounting predecessor (“Predecessor”) to the Company. As
a result, Management’s Discussion and Analysis of Results of Operations and Financial Condition for the twelve months ended December
31, 2024 for each of Proficient and Proficient Transport are included in this Annual Report on Form 10-K. A black-line between the Successor
and Predecessor periods has been placed in the financial tables below to highlight the lack of comparability between these two periods. Please
refer to Note 3 of the Notes to Consolidated Financial Statements — “Business Combinations.”
2
Operations and Services Provided
We provide new and used auto
transportation and logistics services to automobile manufacturing companies, leasing companies, automobile dealers, automobile auction
companies, long-distance transporters, brokers and individuals. Services typically are provided as needed by particular customers and
charged according to pre-set rates based on auto size, weight and mileage. We transport large numbers of vehicles from auto manufacturing
sites, marine ports and rail hubs to individual auto dealers. On the used car transport side, cars are picked up and delivered primarily
to rental car locations and automobile auctions. In addition, we provide transport services for dealers that transfer new cars from one
region to another based on demand.
We operate a dispatch system
to assign individual transport vehicles to particular cars that require delivery. We also have computerized positioning systems which
identify and track vehicle location and status, thereby decreasing response times and increasing asset utilization.
Our initial integration efforts after the Combinations focused on consolidating
route planning and dispatch software of the Founding Companies, which was completed during the third quarter of fiscal year 2024.
We began integrating and implementing
accounting systems across the Founding Companies to enable us to centralize our accounting and financial reporting activities at our headquarters
in Jacksonville, Florida. We anticipate that we will need to upgrade and expand our information technology systems on an ongoing
basis as we expand our operations and complete acquisitions.
Segments
Our
business is organized into two reportable operating segments, Company Drivers and Brokered. The Company Drivers segment offers automobile
transport and dedicated services under an asset-based model. The Company’s dedicated service offering devotes the use of Company
equipment to specific customers and provides transportation services through long-term contracts. The Company’s Brokered segment
offers transportation services utilizing an asset-light model focusing on outsourcing transportation of loads to third-party carriers.
Company
Drivers Segment
In
our Company Drivers Segment, we generate revenue by transporting autos for our customers in our OEM contract and spot arrangements, secondary
market auto moves, and our contract services arrangements. Our OEM contract and spot arrangements provide auto transportation and logistics
services through movements of autos over routes across the United States. Secondary market auto moves are for customers other than
OEMs. Our contract services offering devotes the use of equipment to specific customers and provides services through long-term contracts.
Our Company Drivers segment provides services that are geographically diversified but have similar economic and other relevant characteristics,
as they all provide Company Drivers carrier services of automobiles. The main factors that affect operating revenue in the Company Drivers
Segment are the average revenue per unit received from customers and the number of vehicles transported.
We
are typically paid a predetermined rate per unit for our Company Drivers services. Our executed contracts contain fixed terms and rates
and are often used by our customers with high-service and high-priority freight. We continually strive to increase our revenues
derived from fixed term contracts as a percentage of total revenue by continuing to build upon our existing relations and acquire new
relations with OEMs.
Our
contracts with customers in the Company Drivers segment generally include a fuel surcharge to account for fluctuating fuel prices.
Built into our predetermined contract rates with each customer is a baseline fuel price and when fuel prices rise above this
baseline price our customers compensate us for the variance in the form of additional revenue. If fuel prices drop below the
baseline price, we may in turn owe our customers this variance and record a discount. This additional revenue/discount is
represented on the Fuel Surcharge and Other Reimbursements line in our condensed consolidated financial statements.
3
In
our Company Drivers segment, our most significant operating expenses vary with miles traveled and include (i) fuel, and (ii) driver-related
expenses, such as wages, benefits, training and recruitment. Expenses that have both fixed and variable components include maintenance
and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a
controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs include depreciation of long-term assets,
such as trucks and trailers (to which we refer as revenue equipment) and service center facilities, the compensation of non-driver personnel
and other general and administrative expenses.
Our
Company Drivers segment requires substantial capital expenditures for purchase of new revenue equipment. We use a combination of financing
leases and secured long-term debt to acquire revenue equipment. When we finance revenue equipment acquisitions with either finance
leases or long-term debt, the asset and liability are recorded on our consolidated balance sheet, and we record expense under “Depreciation”
and “Interest expense.” We expect our depreciation and interest expense will be impacted by changes in the percentage of
our revenue equipment acquired in any given year.
Brokered
Segment
In
our Brokerage Segment, we generate revenue by utilizing our independent owner operators (who run under our DOT) and independent third-party
carriers to assist in transporting autos for our customers in our OEM contract and spot arrangements, and secondary market auto moves.
We maintain the customer relationship, including billing and collection, but outsource the transportation of the loads. The main factors
that affect operating revenue in our Brokered segment are our customers’ excess inventory needs, the rates we obtain from customers,
the auto volumes we ship through the brokered segment and our ability to secure these carriers. We generally do not have contracted long-term rates
for the cost of third-party carriers, and we cannot assure that our results of operations will not be adversely impacted in the future
if our ability to obtain third-party carriers changes or the rates of such providers increase.
The
most significant expense of our Brokered segment, which is primarily variable, is the cost of purchased transportation that we pay to
third-party carriers and is included in the “Purchased transportation” line item. This expense generally varies directly
with the amount of Brokered revenue, rates charged by third party carriers, which includes their cost of fuel, and current demand and
customer shipping needs. Other operating expenses are generally fixed and primarily include the compensation and benefits of non-driver personnel
(which are recorded in the “Salaries, wages and benefits” line item).
The
primary performance indicator in our Brokered segment is operating margin (brokered operating revenue, less brokered operating expenses,
as a percentage of brokered operating revenue). Operating margin can be impacted by the rates charged to customers and the rates charged
by third-party carriers.
Strategy
Our strategy is to be one
of the nation’s leading providers of auto transportation and logistics services by focusing on broadening our platform and expanding
our service offerings while maintaining the high quality of our existing services and increasing our operational efficiency. We intend
to achieve this objective by executing the following business strategies:
4
Operating Strategy
Drive Organic Growth
by Offering Committed Capacity and Consistently High-Quality Service to Expand Existing Relationships. We believe that
the ability to commit transportation equipment capacity and timely, professional and dependable service at a reasonable price are the
most important factors in maintaining and expanding customer relationships in the auto transportation and logistics industry. We intend
to use our scale to offer customers committed transportation equipment capacity and our financial strength to consistently invest in our
capacity. We are continuing the proven practices of the Founding Companies throughout our operations in areas such as dispatching technology,
driver training and professionalism, preventive maintenance and safety. We cross-sell the consistently high-quality service
across our platform to existing customers of our various Founding Companies.
Expand Service Offerings
to Further Entrench Existing Customer Relationships and Win New Customers. We have strategically identified
select customers looking for additional related services that would expand our relationships with these customers. For example, there
is an opportunity to further expand our operations of regional auto storage yards on behalf of major automotive OEMs, which we believe
will lead to future revenue opportunities. We believe that our expanded scale and other resources will permit us to acquire new customers
that require greater auto transportation and logistics capacity and storage capabilities than those possessed by smaller operators. We
also intend to utilize our geographic diversity to pursue additional business from existing customers that operate on a regional or national
basis, such as auto OEMs, leasing companies, insurance companies and automobile auction companies.
Achieve Operating Efficiencies. While
the Founding Companies operate under their existing names, we seek to achieve operating efficiencies through improved asset utilization.
Increased route density and backhaul opportunities lead to improved profitability, which we intend to achieve through the combination
of the Founding Companies. We operate all operations under one integrated transportation management and route planning software, allowing
us to have enhanced visibility and improve equipment utilization. The integration began immediately upon the closing of the Combinations,
initially focused on consolidating route planning and dispatch software. These efforts did not and are not expected to have significant
associated expenses as we utilized software already used by some of the Founding Companies. Such integration may incur financial benefits
as administrative redundancies are removed. We also believe there will be, and have experienced, opportunities to use our purchasing power
to seek improved pricing in areas such as purchased transportation, fuel, vehicles, and parts, and have created a position tasked with
overseeing collective purchasing.
Maintain Local Expertise.
Members of management of the our subsidiaries have, and companies to be acquired in the future will, maintain local control of
their regional operations and work in coordination with each other, rather than compete, for business opportunities in their local markets.
We believe this approach enables us to take advantage of the local and regional market knowledge, name recognition and customer relationships
possessed by each acquired company while still allowing us to bring greater operating efficiency to the larger platform. We believe this
structure will be attractive to owners who desire to benefit from being part of a larger platform and the efficiencies of that structure.
We hired a vice president who will be responsible for overseeing and approving the pricing and bids of each of our subsidiaries, such
that the subsidiaries will not be competing against each other despite maintaining existing regional operations.
Optimize Asset Flexibility.
We own and operate a meaningful percentage of the tractors and trailers we utilize in our daily operations, as opposed to predominantly
outsourcing to owner-operators or sub-haulers. For the years ended December 31, 2024 (successor) and December 31, 2023
(predecessor), 36%, and 32%, respectively, of our combined revenue came from company-operated vehicles and we expect those percentages
to increase in the future. We believe this approach allows us to maximize our profitability because it permits us to manage down underlying
operating costs versus paying a higher fixed percentage of revenue to third-party haulers. This approach also provides more certainty
to our customers because of the Company’s ability to provide guaranteed capacity in an increasingly complex market. By combining
companies, we believe we have more favorable purchasing opportunities with our vendors that allow us to add more Company trucks and Company
drivers. At the same time, we utilize a diversified approach to securing additional capacity to service our customers where we do not
currently possess significant network density.
5
Acquisition Strategy
Expand Within Existing
Geographic Markets and Select New Markets. The auto transportation and logistics industry is highly fragmented, with the majority
of the industry represented by smaller, regional providers representing attractive tuck-in acquisition opportunities. We see opportunity
with regional providers that overlap with our geographic footprint that would improve our network density in select geographies and add
new customers. We believe there will be significant opportunities to acquire and integrate these smaller acquisition candidates into our
existing infrastructure, providing opportunities for cost synergies and cross-selling. In addition, we may seek to vertically integrate
our operations by acquiring companies that offer complementary services that we do not currently offer. There are several new geographic
regions where we have expanded and can expand our footprint via acquisition of smaller regional providers. When pursuing an acquisition,
we intend to acquire established, high-quality companies in markets where we can establish a leading market position to serve as
core businesses into which additional operations may be consolidated.
Customers
We believe that the commitment
to consistent, high-quality service demonstrated by the Founding Companies has produced long-term relationships with many existing customers
and positions us to expand market penetration through the use of enhanced sales and marketing efforts. The chart below indicates the
tenure (i.e., the maximum number of years the customer has been served by one of the Founding Companies) of our top 12 customers:
Customer
Tenure
Customer
Tenure
Mercedes-Benz
33
Hyundai
17
Ford
29
Porsche
16
General Motors
28
Volkswagen
14
Stellantis
26
Land Rover
12
Toyota
20
Tesla
8
Nissan
20
BMW
7
We generally focus our marketing
efforts on large commercial accounts, including auto manufacturers, rental car companies, auto auctions, and auto dealerships. We have
augmented the capabilities and contacts of the Founding Companies with a sales program designed to identify significant target customers
and expand working relationships with existing customers.
Although we generally have
a diverse customer base, four customers, General Motors, Glovis (the logistics arm of Hyundai and Kia), BMW and Ford account for roughly
49.6% of our combined operating revenue in 2024. Our business with these five companies, like all other new car delivery contracts, generally
run from three to five years within a certain geographic region, though more recently, some OEM customers are agreeing to longer five-to-ten-year
contracts. We currently operate under 125 individual contracts with our customers, with no single contract representing more than
7% of our 2024 combined revenue. Historically, all contracts have required public re-bidding upon termination of the contract;
however, if the service levels are good, there is a high likelihood that the incumbent carrier will retain the business. Today, many contracts
include automatic extensions and OEMs are generally more open to private rate negotiations with incumbent carriers as opposed to a public
bidding process. As an industry leader, we should benefit from these changes in contract structure and process. We expect that our
existing customers will continue to account for a significant percentage of our revenue for the foreseeable future. The loss of a significant
customer, including any of the top five, could have a material adverse effect on our business, financial condition and results of operations.
6
Competition
The provision of auto transportation
and logistics services is competitive. Competition for the delivery of auto transportation and logistics services is based primarily on
quality, service, timeliness, price, and geographic proximity. We compete with certain large auto transportation and logistics companies
on a regional and local basis, some of which may have greater financial and marketing resources than us. We also compete with many smaller
local companies, which may have lower overhead cost structures than us and may, therefore, be able to provide their services at lower
rates than us. We believe that we can compete effectively because of our high-quality service, geographic scope, broad range of services
offered, experienced management and operational economies of scale. We differentiate ourselves from our competition in terms of service
and quality by investing in training, systems and equipment and by offering a broad range of products and services, and in terms of timeliness
and geographic proximity by establishing facilities and vehicles in targeted geographic markets so that we are positioned to provide timely
deliveries in response to orders from the auto companies.
We may also face competition
for acquisition candidates from companies which are attempting, or may attempt in the future, to consolidate towing and transport service
providers. Some of our current or future competitors may be better positioned than us to finance acquisitions, to pay higher prices for
acquisition candidates pursued by us, or to finance their internal operations.
Seasonality
We expect to experience significant
fluctuations in quarterly operating results due to a number of factors, including the timing of auto production and sales and acquisitions
and related costs; our success in integrating acquired companies; the loss of significant customers or contracts; the timing of expenditures
for new equipment and the disposition of used equipment; price changes in response to competitive factors; and general economic conditions.
As a result of these fluctuations, results for any one quarter should not be relied upon as being indicative of performance in future
quarters.
Government Regulation and Environmental
Matters
Auto transportation and logistics
services are subject to various federal, state and local laws and regulations regarding equipment, driver certification, training and
recordkeeping, and workplace safety. Our vehicles and facilities are subject to periodic inspection by the U.S. Department of Transportation
and similar state and local agencies. Our failure to comply with such laws and regulations could subject us to substantial fines and
could lead to the closure of operations that are not in compliance. In addition, certain government contracting laws and regulations
may impact our ability to acquire complementary businesses in a given city or county. We have numerous federal, state and local licenses
and permits for the conduct of their respective businesses. Any failure by us to obtain such licenses and permits or delay in our receipt
of such licenses and permits could have a material adverse effect on our business, financial condition and results of operations.
Our operations are subject
to a number of federal, state and local laws and regulations relating to the storage of petroleum products, hazardous materials and impounded
vehicles, as well as safety regulations relating to the upkeep and maintenance of our vehicles. In particular, our operations are subject
to federal, state and local laws and regulations governing leakage from salvage vehicles, waste disposal, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters. We believe that we are in substantial compliance with all
such laws and regulations and do not currently anticipate that we will be required to expend any substantial amounts in the foreseeable
future in order to meet current environmental or workplace health and safety requirements. It is possible that an environmental claim
could be made against us or any of the Founding Companies or that one or more of them could be identified by the Environmental Protection
Agency, a state agency, or one or more third parties as a potentially responsible party under federal or state environmental laws. If
we or any of the Founding Companies were to be named a potentially responsible party, we could be forced to incur substantial investigation,
legal and remediation costs, which could have a material adverse effect on our business, financial condition and results of operations.
Safety and Training
We are committed to focusing
on and emphasizing safety and training. We utilize a variety of programs to improve safety, including regular driver training and certification,
drug testing and safety bonuses. We utilize these and other proven practices throughout our operations to ensure that all employees comply
with safety standards established by us, our insurance carriers and federal, state and local laws and regulations. In addition, we promote
an emphasis on an accident-free environment. We believe that our emphasis on safety and training will assist us in attracting and retaining
quality employees.
7
Facilities and Vehicles
We operate 50 leased facilities that are used to park, repair and maintain
transport vehicles. All of our facilities are leased from other parties and, in three cases, those parties are former owners or affiliates
of the Founding Companies. See Note 17 “Related Party Transactions.” Many of our facilities are capable of being utilized
at higher capacities, if necessary. We will seek to consolidate facilities and vehicle storage capacity in the future.
We operated a fleet of roughly
1,145 auto transport vehicles and trailers as of December 31, 2024. Our fleet consists both of Company-owned tractors and trailers
and those run by owner-operators and sub-haulers. We intend to own and operate a significant percentage of the tractors and trailers we
utilize in our daily operations, as opposed to primarily outsourcing to owner-operators or sub-haulers. When needed, we have access to
a vast network of sub-haulers to fulfill client needs. We believe these vehicles are generally well-maintained and adequate for our current
operations.
Risk Management, Insurance and Litigation
The primary risks in our operations
include bodily injury, property damage, workers’ compensation claims and, potentially, environmental and land use claims. Following
the Combinations, we began consolidating insurance on a Company-wide basis, subject to customary deductibles. We have been, from time
to time, parties to litigation arising in the ordinary course of their respective businesses, most of which involves claims for personal
injury or property damage incurred in connection with their operations. The Company is not currently involved in any litigation that the
Company believes will have a material adverse effect on our business, financial condition or results of operations, except as set forth
below.
Employees
As of December 31, 2024,
we had approximately 671 employees and an extensive network of independent contractors and sub-haulers. None of our employees are subject
to collective bargaining agreements.
We recognize that our continued
ability to attract, retain and motivate exceptional employees is vital to ensuring our long-term competitive advantage. Our employees
are critical to our long-term success and are essential to helping us meet our goals. Among other things, we support and incentivize
our employees in the following ways:
●
Talent Development, Compensation and Retention. We strive to provide our employees with a rewarding work environment, including the opportunity for growth, success and professional development. We provide our employees with competitive salaries and bonuses, development programs that enable continued learning and growth and a robust employment package — all designed to attract and retain a skilled and diverse workforce.
● Health and Safety. The safety
and well-being of our employees is our top priority. We support the health and safety of our employees by providing health care, retirement
planning, paid time off and other benefits, which are intended to assist employees to manage their well-being.
8
Information about our Executive
Officers
The
following table summarizes information about each one of our executive officers as of December 31, 2024.
Name
Age
Position(s)
Richard O’Dell
63
Chief Executive Officer, Director
Amy Rice
46
President, Chief Operating Officer
Brad Wright
64
Chief Financial Officer, Secretary
Richard D. O’Dell
— Mr. O’Dell has served as our Chief Executive Officer and a member of our Board of Directors since our IPO. Mr. O’Dell
has served as the Non-Executive Chairman of the Board of Directors of Saia since April 2020. Mr. O’Dell served as Chief Executive
Officer of Saia from December 2006 until his retirement in April 2020. Mr. O’Dell joined Saia in 1997 and served in various executive
and financial positions until his appointment as Chief Executive Officer. Mr. O’Dell also has experience in public accounting as
a certified public accountant. Mr. O’Dell graduated with a bachelor’s degree in Accounting from the University of Kansas.
Amy Rice —
Ms. Rice has served as our President and Chief Operating Officer since August 2024. Ms. Rice served in various roles at CSX, a Class I
freight railroad and transportation provider, from 2011 – 2019, including as Vice President, Coal and Intermodal Operations from
2018 – 2019, Vice President, Strategic Planning from 2017-2018, Vice President of Operations Planning and Performance in 2017 and
Vice President of Finance in 2017. More recently, Ms. Rice served as the chief executive officer of Sy-Klone International, a private
manufacturer of fine dust filtration systems, from 2019 to 2023. Ms. Rice has been a board member of Firan Technology Group Corporation
since 2022. Ms. Rice has a Masters of Business Administration from the Ross School of Business of the University of Michigan and an undergraduate
business degree from Emory University.
Brad Wright —
Mr. Wright has served as our Chief Financial Officer and Secretary since our IPO. Mr. Wright was most recently the Chief Financial Officer
and a member of the Board of Directors of PMC Consolidated Holdings, LLC, the parent company of Protect My Car, a Crestview Partners portfolio
company (until its sale that closed in August 2023) providing extended auto warranty plans to consumers, since September 2018. From September
2017 through March 2018, Mr. Wright was the interim Chief Financial Officer of Eurasia Group, a global consultancy firm. From February
2008 through July 2017, Mr. Wright served as Executive Vice President, Chief Financial Officer and Chief Administrative Officer of FBR
& Co., the NASDAQ-listed parent company of Friedman, Billings Ramsey Capital Markets & Co., an investment banking and institutional
brokerage firm. Mr. Wright earned a bachelor’s degree in Business Administration with an emphasis in Accounting from Nebraska Wesleyan
University (1982).
Available Information
The Company maintains a website
at the following address: http://www.proficientautologistics.com. The information on the Company’s website is not incorporated by reference
in this Annual Report.
We make available on or through
our website reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form
10-Q, our Current Reports on Form 8-K and amendments to these reports. We make this information available on our website free of charge
as soon as reasonably practicable after we electronically file the information available with, or furnish it to, the SEC. The SEC also
maintains a website at the following address, through which this information is available: http://www.sec.gov.
9