Release Date: March 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Quest Resource Holding Corp (NASDAQ:QRHC) is adding clients at record rates, with many initiating larger programs than previously seen.
• The company has a robust pipeline and is receiving positive referrals from new clients, enhancing its market reputation.
• QRHC completed the refinancing of its debt, reducing its blended interest rate margin by approximately 150 basis points, saving about $1 million annually.
• The implementation of a new vendor management system is showing progress, with zero-touch processing capabilities improving efficiency.
• QRHC has made significant leadership changes, including the appointment of Perry Moss as CEO, who has a strong track record in operational and general management roles.

Negative Points

• QRHC has not consistently converted top-line growth into sustained margin and profit growth, indicating execution issues.
• The company faced temporary cost increases due to onboarding new clients and implementing a new vendor management system.
• Client attrition and weakness in industrial markets have negatively impacted QRHC's results.
• QRHC experienced a 6.7% decrease in gross profit dollars year-over-year, primarily due to a shift in revenue mix and higher costs of services.
• The company recognized an impairment loss of $5.5 million related to the sale of client contracts for the mall and shopping center portion of RWS.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with QRHC.

Q: Can you provide more details on the vendor management system rollout and its impact on costs and timing? Also, could you clarify the attrition and industrial weakness issues? A: Brett Johnston, CFO: The vendor management system is substantially complete, and we are achieving our zero-touch goals. Temporary costs related to the rollout will continue into Q1, but we expect improvements by Q2. Attrition was mainly due to M&A and the mall business exit, while industrial weakness is expected to persist for a few more quarters but may improve in the second half of the year.

Q: How is the sales pipeline performing, and are there any changes in timing or cadence of wins due to macroeconomic factors? A: Perry Moss, CEO: The sales pipeline has grown significantly over the last year, and we continue to see strong deal flow. We have implemented a disciplined sales process with KPIs and metrics, which gives us full visibility into the pipeline. We remain bullish on the pipeline's growth and expect continued success.

Q: What are your thoughts on M&A in the near to medium term, given the focus on operational improvements and debt reduction? A: Dan Friedberg, Chairman: While past acquisitions have added scale and scope, our current focus is on paying down debt and driving efficiencies. We are not actively pursuing acquisitions in the immediate future, as we prioritize cash generation and debt reduction.

Q: Can you elaborate on the expected proceeds and impact of the RWS business sale? A: Dan Friedberg, Chairman: We have a preliminary agreement in place for the RWS business sale, but we cannot comment on proceeds until the deal is finalized. The RWS business was a non-contributor to the bottom line, and its sale will reduce disruption and improve focus on core operations.

Q: How confident are you that the current changes will address past execution issues and lead to consistent performance? A: Perry Moss, CEO: We are implementing an operational excellence initiative to improve processes and accountability across the company. By establishing KPIs and a performance culture, we aim to enhance execution and avoid surprises. We believe these changes will lead to a more efficient and profitable business.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.