Quest Resource Holding Corporation Q1 FY2026 earnings call

• First quarter marked steady monthly sequential improvement, with industrial customers' revenue affected by softer manufacturing environment but non-industrial parts performed well. - Operational excellence initiatives driving improved performance in areas like exception management, wallet share expansions, etc. - Recent wins like expansion of retail customer, onboarding of new full-service restaurant customer, and share-of-wallet wins, with recent wins now full contributors. - New sales pipeline active with opportunities to add large national companies. - Technology and capabilities as key differentiators for improved customer service and vendor management. - Diversifying portfolio into non-industrial end markets and new markets like healthcare.

Revenue for the first quarter was $61.7 million, a 10% decrease from one year ago but a sequential increase of 5% compared to the fourth quarter. Gross profit dollars totaled $9.7 million, a decline of almost 12% compared to the prior year but a sequential increase of 6%, resulting in a gross margin of 157%. SG&A was $8.4 million, better than the estimate for the quarter, with a 9% sequential increase mainly due to the resumption of bonus expense and a 26% year-over-year decrease. Operating cash flow was slightly positive, roughly $0.2 million. DSOs finished the quarter in the mid-70s, accounts receivable was up $3 million, and working capital days were reduced to 11.5.

• Expect sequential growth in gross profit dollars in Q2 due to recent new business wins and wallet share expansions. - New quick-service restaurant customer in Q2 expected to ramp quickly with minimal startup costs. - Anticipate executing early payments on term debt to reduce cost of debt and strengthen balance sheet. - Focus on growing business with new and existing customers, driving margin improvements, developing operating platform, improving cash generation, and reducing debt balance.

• Geopolitical events and risk of extended period of elevated fuel prices. - Softer industrial environment leading to reduced volumes from large industrial customers. - Macro-economic conditions slowing decision-making process for prospective customers.

Q: Good afternoon, Perry and Brett. Maybe first for us, on the new win in QSR, could you give details you can give on size, number of locations? You talked a little bit about white space for land and expand, so just curious on how many waste streams. And then it sounded like minimal service provider changes, so it sounds like that can ramp pretty quickly as well.

A: Yes, that is right, Aaron. As you know, we do not give specific details about these clients, but this is consistent with all of our new growth targets being seven- to eight-figure. So this is a seven-figure account. We landed a little over 50% of the portfolio, so there is plenty of room for continued expansion. This came from another asset-light provider, so they saw value in the Quest Resource Holding Corporation program over the program they were currently on. Early reports indicate the other award winner was also an asset-light company, and some early indications are that our launch process and transition is much smoother than our competitor, so that leaves me optimistic that there is some growth potential there. The material streams here are typical municipal solid waste and recyclables.

Q: Understood. And then on the share-of-wallet initiatives, is there a way to think about just potential growth you see there, whether it is penetration rates or average number of waste streams? It just seems like你saw good success coming out of the last year and are optimistic moving forward.

A: Yes. As you know, we put some additional focus and discipline around our share of wallet beginning last year. We do not really talk about all of the share-of-wallet wins that we have had. We have had several dozen of those wins, but some of them are not material enough to really mention. The share-of-wallet opportunities that we typically talk about again fall into that same category as new business, so these are large opportunities to expand. We have, I would say, five or six opportunities with some of our largest customers to bring on a whole other segment of their business, and we are in very opportunistic discussions with them. We have rolled out plans on how to implement this new business. The business has not been sold yet, but the conversations are very positive, and I expect to see a lot more growth in the share-of-wallet sector. If you recall, because of the uncertainty in the general economy, we decided that instead of only focusing on new business, which we are still doing, we would put added emphasis on share of wallet because these are existing relationships. These are customers that already trust us; they already know that we execute. So it is an easier yes than with a new prospect. I would tell you that we do not give the value of our pipelines. The new business pipeline is very robust; the share-of-wallet pipeline is about 50% of the size of the new business pipeline, so it is significant.

Q: Alright. Thank you for the color there. And then just maybe one last one. What are you seeing on inflation across the commodity space on the business? Any impact to customer decisions or your vendor network, just how you are managing that and thinking about it moving forward?

A: Yes, it is a really good question. Certainly with the current fuel situation, we got out in front of this and started working with our vendors and our customers before this really fast ramp-up in fuel. We have good protection in our contracts where uncontrollable costs can be passed through. But one of the value propositions that we deliver to our customers is we always fight on their behalf. So instead of simply just taking on cost increases and passing them through, we do everything within our capabilities to push those off or to minimize them. I would say that we have not seen anything significant to affect the business so far, but we have been proactively working on plans should significant cost increases come through. But so far, so good.

Q: Good afternoon, Brett and Perry. Thanks for taking my call. Do you ever disclose, or even directionally, how big the industrial business is for you guys in terms of revenue?

A: No, Jerry, not directly. We have tried to do a good job over the last year or so to call out the variance that is taking place with those select customers within the industrial group. As a reminder, the industrial group is larger than the clients that are driving the variances. We are only speaking to the select couple of clients that sit in an isolated industry market as the variance, but we have not called that out largely.

Q: Got it. Alright. The reason I ask is we are starting to see data from the ISM that is turning positive for the first time in years. I think there is some freight data that is showing maybe some price increases, indicating a real goods economy is, dare I say, starting to expand a little bit. These are maybe forward-looking indicators. I am just curious if you have any thoughts on that, or are some of these industrial clients sort of in their own little select world that may not be benefiting from what我am talking about?

A: Jerry, I think these few customers that Brett referenced are in a specific category of the industrial manufacturing sector that has really been pretty soft. I think we have said they operate in the ag sector. If we look at sequential volume increases from Q4, they were largely what我们would expect. But if you compare the increase to last year, the increases that we realized in Q4 this year were slightly better. We are not predicting any significant increase in volume yet. We are cautiously optimistic. We did see some good trends. We do not control our customers' production volumes. If they continue to perform like they did, particularly in March, I think我们will see some nice trending. We have built this business over the last year to take every advantage of any tailwind that we can get. We just have not had any. March, we may have had a little breeze, and I think我们took advantage of it. So if those early indicators flow through to these specific customers in the ag sector, I think我们will benefit from that.

Q: I would also remind you, from a year-over-year perspective, if you look back at when we started really talking about those struggles on the industrial side, it was in Q1 of last year. So from a year-over-year comparison, we are kind of sunsetting some of those challenges. We did see some additional reductions across last year, but the bulk of the decline in those clients came largely in 2024 and even 2025. Despite some continued pressure there, maybe we do not get back to the same volumes we had a year and a half ago, but from a year-over-year comparison, it is not going to hold us back from showing growth.

A: Got you. Switching gears, the QSR win. I think你talked a little bit about it, but I do not know if I caught all of it. You said, I think, you had 50% of the portfolio, and it sounded like another asset-light company got the other 50% of the portfolio. I am just wondering if that is stores or locations, or was it service lines?

A: Jerry, that is a good question. Those represent locations. I do not have that based on service lines. I would expect that it would probably be linear, that we got a little over half the locations as well as a little over half of the service lines.

Q: Got it. Is that QSR in meat, fish, or chicken?

A: The answer is yes. These are major brands that are very recognizable. In fact, our end came from a referral from one of our corporate customers who operates some of those brands and made the recommendation that this franchisee should look at our model.