Quest Resource Holding Corporation Q2 FY2025 earnings call

Key Initiatives

• Focus on improving cash generation, generating $3.9 million in operating cash flow in Q2 and reducing debt by $6.6 million year-to-date.
• Optimizing waste streams for clients to drive cost savings and improve margins on renewed business.
• Refining share of wallet process with existing clients, having been awarded an expansion with a large retailer client.
• Improving AP platform to reduce exceptions and disruptions, with 46% improvement in paying haulers on time and 83% improvement in vendor bill processing on time.

Cultural Shift

• Emphasis on operational excellence, better communication with vendors and clients, and employees holding each other accountable for continuous improvement.

Revenue for the second quarter was $59.5 million, a decrease of 19% from the previous year and 13% sequentially from the first quarter. Approximately 1/3 of the $9 million sequential revenue decrease was related to the mall-related business sold at the end of the first quarter, with the bulk of the remaining decrease from the industrial end market. Gross profit dollars were $11 million, slightly up from the first quarter. New clients added in the past 18 months showed modest sequential revenue growth. Revenue contribution: Mall-related business sold impacts, industrial end market clients contributed to the decrease, while new clients provided incremental contribution.

Outlook

• Expect sequential gross profit dollars to be flat to slightly down in Q3 and resume sequential growth in Q4.
• SG&A costs expected to be mostly flat in Q3 and Q4.
• Continued aggressive debt reduction in the second half of the year as cash initiatives take hold.
• Confident in sequential contribution from new clients and share of wallet growth in the back half of the year.

• Uncertainty in industrial end markets affecting client volumes.
• Margin pressure during client renewals due to economic uncertainty.
• Uncertain pace of adding new business due to prospect uncertainty.

Q: So obviously, I want to start with revenue. I think a little bit higher decline than anticipated. And I think you called out the industrial space in particular, but also said you expect continued weakness on that front. Is this slowing down? Is this weakness going to be slowing down? Has it abated and going to be staying down? And the opposite side of that, any hopes for green shoots in the next quarter or two? It does feel like the economy in general was a little rough in the first half but maybe catching its stride now.

A: Yeah. Hi Jerry, this is Perry. I think our industrials will continue to follow the general economy. So it's tough to have any predictions on what's to come. I think the general uncertainty caused by the current economic conditions, tariffs, et cetera, have caused some challenges in our industrial sector. So I think that follows along with the general economy. If we see some improvement, I think our industrials will follow suit. But I'll tell you that our other sectors are doing rather well. So our food space sector, our grocery sector, they seem to be doing very well. So one of the strategies that we've had over the last year is to build out a much more well-rounded portfolio to kind of offset some of those implications.

Q: How much -- and I don't know if you've given this in the past, I apologize, and you may not want to give it here, which is fine as well. But how much of your revenue is oriented towards industrial?

A: Yeah. We don't -- we've never given that, and we continue not to do that.

Q: So obviously, I want to start with revenue. I think a little bit higher decline than anticipated. And I think you called out the industrial space in particular, but also said you expect continued weakness on that front. Is this slowing down? Is this weakness going to be slowing down? Has it abated and going to be staying down? And the opposite side of that, any hopes for green shoots in the next quarter or two? It does feel like the economy in general was a little rough in the first half but maybe catching its stride now.

A: Yeah. Hi Jerry, this is Perry. I think our industrials will continue to follow the general economy. So it's tough to have any predictions on what's to come. I think the general uncertainty caused by the current economic conditions, tariffs, et cetera, have caused some challenges in our industrial sector. So I think that follows along with the general economy. If we see some improvement, I think our industrials will follow suit. But I'll tell you that our other sectors are doing rather well. So our food space sector, our grocery sector, they seem to be doing very well. So one of the strategies that we've had over the last year is to build out a much more well-rounded portfolio to kind of offset some of those implications.

Q: How much -- and I don't know if you've given this in the past, I apologize, and you may not want to give it here, which is fine as well. But how much of your revenue is oriented towards industrial?

A: Yeah. We don't -- we've never given that, and we continue not to do that.

Q: So obviously, I want to start with revenue. I think a little bit higher decline than anticipated. And I think you called out the industrial space in particular, but also said you expect continued weakness on that front. Is this slowing down? Is this weakness going to be slowing down? Has it abated and going to be staying down? And the opposite side of that, any hopes for green shoots in the next quarter or two? It does feel like the economy in general was a little rough in the first half but maybe catching its stride now.

A: Yeah. Hi Jerry, this is Perry. I think our industrials will continue to follow the general economy. So it's tough to have any predictions on what's to come. I think the general uncertainty caused by the current economic conditions, tariffs, et cetera, have caused some challenges in our industrial sector. So I think that follows along with the general economy. If we see some improvement, I think our industrials will follow suit. But I'll tell you that our other sectors are doing rather well. So our food space sector, our grocery sector, they seem to be doing very well. So one of the strategies that we've had over the last year is to build out a much more well-rounded portfolio to kind of offset some of those implications.

Q: How much -- and I don't know if you've given this in the past, I apologize, and you may not want to give it here, which is fine as well. But how much of your revenue is oriented towards industrial?

A: Yeah. We don't -- we've never given that, and we continue not to do that.