Quest Resource Holding Corp Q1 FY2025 earnings call

• Completed sale of non-core RWS business, generating $5 million cash to reduce debt and saving $3 million annually in SG&A costs.
• Added experienced executives, including promoting Perry Moss to CEO and hiring Nick Ober as SVP of Operations.
• Implemented operational excellence initiative focusing on process improvements, cash flow, automation, and employee/customer experience.
• Developed workflows and vendor management platform to drive efficiencies, lower costs, and improve customer service.
• Onboarded new clients, with last year's new clients expected to provide incremental growth as services are rolled out and optimized.

In the first quarter, revenue was $68.4 million, a 6% decrease from the previous year and a 2% sequential decrease from the fourth quarter. Gross profit dollars were $10.9 million, a 22% decrease from the previous year but a 2% sequential increase from the fourth quarter. Revenue contribution was affected by client attrition, lower volumes at select larger clients, revenue mix shift, and temporary increase in cost of services.

• Expect sequential improvements in gross profit dollars starting in Q2 due to efficiency initiatives and growth.
• Anticipate SG&A costs to decrease sequentially in Q2 and be approximately $9.5 million per quarter in the second half of the year.
• Aim to improve EBITDA, cash generation, and pay down debt through ongoing operational initiatives and process improvements.
• Covenants eased through 2025 with leverage covenant ratios to be tested with annualized adjusted EBITDA buildup starting from Q2 results.

• Economic uncertainty and weakness in end markets, particularly affecting some mature clients.
• Client attrition, including isolated cases related to customers acquired with different programs.
• Challenges in reducing DSOs due to inefficiencies in processing payments from larger clients and missing invoices, though efforts are underway to address this via AP system and improved visibility.

Q: Any leaks or gaps identified in operational processes and notable KPIs moving forward?

A: Yes, flaws and gaps in processes identified; designed processes to fix them, with quick initiatives to drive immediate impact in Q2. Focus on filling gaps and increasing efficiencies to convert business into profit.

Q: Weakness in end markets and impact on pipeline?

A: Some slowdown in opportunities, but attracting new prospects due to cost savings and efficiency value proposition; final two stages of sales cycle are robust.

Q: Strategies to bring down DSOs?

A: Ongoing conversations with larger clients, improved visibility with AP system to find missing invoices, and increased efficiency in billing to get bills out faster and cleaner.

Q: Changes in end customer behavior or volumes other than industrial segment?

A: No significant effect on other end markets; seen some uptick in demand for services provided.

Q: Customer attrition common denominator and bonus accrual?

A: Isolated attrition related to customers acquired with different programs; bonuses built over annualized forecast, salesmen on commission plan not earning bonuses.

Q: Timetable for evaluating initiatives and customer retention?

A: Expect results beginning Q2, largely in Q3 and Q4; new customer retention plan with personal involvement in meeting top customers and developing specific plans.

Q: AR improvement and impact on cash?

A: Dealing with larger clients, but new clients at better terms; initiatives in sourcing contracts, procure-to-pay, and order-to-cash to improve GP and EBITDA.

Q: Receivables and billing terms?

A: Terms vary by client; focus on billing faster and getting accrued revenue billed out to start clock on actual terms; initiatives to measure and improve billing processes.