Q4 2021 Quest Resource Holding Corp Earnings Call
Please standby were about to begin.
Good day and welcome to the Quest resource holding corporation fourth quarter and year in 2020. One earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr joined Orleans Investor Relations. Please go ahead Sir.
Thank you Cody and thank you everyone for joining us on today's call before we begin I'd like to remind everyone that this conference call may contain predictions estimates and other forward looking statements regarding future events or future performance of quest.
Use of words like anticipate project estimate expect intend believe and other similar expressions are intended to identify those forward looking statements.
Such forward looking statements are based on <unk> current expectations estimates projections beliefs, and assumptions and involve significant risks and uncertainties.
Actual events or <unk> results could differ materially from those discussed in the forward looking statements as a result of various factors, which are discussed in greater detail and quest filings with the Securities and Exchange Commission.
You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties.
Because forward looking statements are presented as of the date made and we disclaim any duty to update such statements unless required by law to do so.
In addition in this call. We may include industry and market data and other statistical information as well as quests observation and views about industry conditions and developments.
The data and information are based on quests estimates independent publications government publications and reports by market research firms and other sources.
Although quest believes these sources are reliable and the data and other information are accurate, we caution that quest has not independently verified the reliability of the sources or the accuracy of the information.
Certain non-GAAP financial measures will be discussed during this call.
These non-GAAP measures are used by management to make strategic decisions forecast future results and evaluate the Companys current performance.
Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future.
Unless otherwise stated it should be assumed that any financials discussed in this call will be on a non-GAAP basis.
Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release.
With all that said I'll now turn the call over to Ray Hatch, President and CEO right.
Thank you Joe and thanks to everyone for your interest in quest.
We had a great fourth quarter and a strong finish to the year.
For the year, we reached a milestone in profitability for the company, we had an adjusted EBITDA about $10 million for the first time.
During 2021, we also delivered accelerated organic growth.
We grew gross profit dollars by more than 50%.
The growth in gross profit and EBITDA was driven by strength across our business from existing customers through new customers and via acquisitions.
Our growth was split 60, 40 between organic and acquisitions with organic being the larger of the two drivers over.
Over the last few years, our strength has been in our client relationships and we see that as our core strength.
<unk> continued to grow with our existing clients, adding services geographies and also waste streams to help them address their diversion issues.
And at the end of 2020 and during 2021, we saw a significant incremental contribution from new clients.
A step up change in adding new clients as a very positive development for our company.
And should provide future growth opportunities for us in the years to come as we further penetrate these accounts.
We have a lot of activity in the recent quarters and I'm excited to give you an update on the progress, but before I go into that I'm going to turn the call over to Lori <unk>, our chief Financial Officer.
To review the financials Laurie.
Thank you Ray and good afternoon to everyone.
We had strong top line performance revenue increased 68% for the fourth quarter and increased 58% for the year.
As we have said on previous calls gross profit dollars is a key metric we use to measure the success of our initiatives.
For the fourth quarter gross profit dollars increased 56% to $8 7 million.
But for the year gross profit dollars increased 51% to $28 8 million.
For both periods organic growth representing more than half of the increase in gross profit dollars with contribution from both new and existing customers.
Painting portion of the increase in gross profit dollars came from acquisitions.
Gross margin was 18, 8% for the fourth quarter and 18, 5% for the year.
This was 140 basis points, and 80 basis points below the previous year periods, respectively, but within our target range the.
The year over year decrease in gross margin was primarily related to the service mix, which will fluctuate from quarter to quarter and year to year.
Gross margin is also affected by the amount of new business in our mix.
In many cases gross margin tends to be temporarily lower as we bring on new business.
This will likely continue to be a factor with the growth we anticipate for 2022.
As these accounts mature margins from new business trends do improve over time as we optimize service levels.
SG&A expenses were $7 1 million during the fourth quarter compared to $4 5 million during the same period last year.
But the $2 6 million year over year increase.
Approximately $1 1 million was related to incremental overhead costs from the business operations acquired during the fourth quarter of 2021.
Approximately 1 million was related to incremental acquisition integration and related costs and the rest was related to incremental I T related professional fees and increased business activity levels and other costs related to SG&A.
Okay.
For fiscal year, 'twenty, 'twenty, one SG&A costs increased by 27% year over year.
About half of the annual rate of revenue and gross profit dollar growth.
For the year SG&A expenses increased to $21 7 million from 17.1 and 2020.
The $4 6 million increase primarily relates to approximately $1 1 million.
A later two incremental overhead costs from the business operations acquired during the second half of 2021.
The remaining portion of the increase was related to increases in labor and related expenses, which includes an increase in both head count and wage rates approximately $1 million of incremental acquisition and integrated related expenses.
Approximately 650000 incremental professional fees and software license fees.
And an increase in marketing trade show travel and other costs related to SG&A to support increased business activity year over year.
The acquisitions will add about one 1 million per month in incremental SG&A expenses during 2022.
Until we anniversary the acquisition dates.
We are also increasing our investments in data and technology during 2022.
To continuously improve the efficiency and scalability of Onboarding new customers.
For 2022, we expect to have incremental spending of approximately half a million in this area.
This represents staff and overhead.
During the fourth quarter, depreciation and amortization increased to $1 1 million versus 346000, a year ago.
And for the year 2021, depreciation and amortization increased to $2 5 million versus $1 2 million a year ago.
The increase was primarily related to the amortization of acquisition related intangibles.
We expect depreciation and amortization to be approximately $9 1 million for 2022.
During the fourth quarter interest expense increased to 841000 from $4 58000 last year.
For the year interest expense increased to $2 5 million from 701000 in 2020.
The increase is primarily related to the debt financing for acquisitions, we've completed in the prior 15 months.
For 2021 net income attributable to common stockholders was $1 7 million.
Or eight cents per diluted share versus 830000 or five cents per diluted share last year.
We are introducing two new metrics for this report.
Adjusted net income and adjusted net income per diluted share, which are both non-GAAP financial measures.
Among other items there are several noncash and acquisition related costs in our income statement.
Which can vary significantly from year to year, we feel excluding these items allow investors to evaluate ongoing financial performance with improved comparability between periods.
There is a reconciliation to GAAP in our financial statements.
For 2021, adjusted net income increased to $5 6 million or 27 cents per diluted share.
Versus 800000 or five cents per diluted share last year.
Moving on to review of the cash flow and balance sheet we.
We generated $2 6 million in operating cash flow for 2021.
Cash flow reflects our strong net income performance, partially offset by investment in working capital to support the significant growth year over year.
Capex was approximately $600000 and we utilized approximately $16 3 million in cash to finance acquisitions.
Our cash balance was $8 4 million at the end of the year up from $7 5 million at the beginning of the year.
At the end of the year, we had 67 9 million in debt versus $18 5 million at the beginning of the year.
The increase primarily reflects the financing for acquisitions completed during 2021.
But at this time I'll turn the call back to Ray.
Thank you Laurie.
Now I'm going to walk you through a review of our business strategies.
With the work we've done over the recent years to transform our business that's incredibly gratifying to see the significant improvement in financial performance.
Wanted to thank our team for making that possible.
We're starting this year with far greater scale, both in terms of revenue and in profitability.
We are and we're well positioned to continue to deliver strong growth and returns for our shareholders.
With this greater scale comes a significant benefit in multiple areas.
First we enhanced our value proposition for our customers.
With greater scale comes greater buying power clearly we benefit from those cost savings, but we're also able to share some of those savings with our customers and improve our value to them.
With greater scale, we also offer clients a broader service offering this.
This increases our value proposition in two ways.
First having quest is a single vendor to manage multiple waste streams simplifies billing provides more uniformed service delivery.
Allows internal resources to be reallocated to their core competencies.
And provides consistent data reporting that can be used to support sustainability reporting.
In addition, having a broader service offering also improves our value proposition by expanding our capabilities to divert more waste streams from the landfill.
Further improving our clients' sustainability.
With greater scale, we also increased the stability and the resilience of our business by diversifying our end markets and our customer mix.
Regarding end market diversification several years ago, almost all of our revenue came from two end markets retail and automotive.
Today, we have multiple major end markets, including retail automotive grocery industrial restaurants multifamily housing and commercial property.
We learned firsthand during the pandemic that having a diversified end market mix enabled us to offset weakness in some markets with strength in others.
Moving onto a discussion about our growth initiatives, which are we are working are working well across the board.
I spoke earlier in my opening remarks about the success, we had in adding new clients since the end of 2020 and how it has been a major driver for organic growth during 2021.
Adding new clients can provide ways of growth over several years. The first wave is simply from having a full year of contribution versus the partial contribution depending on when we began implementing our services.
Most of our engagements are for three years and tend to last for many years thereafter.
Second wave of growth comes from fully implemented programs, which can take from three to 18 months.
And the third wave comes from expanding the footprint or the service offering we have many clients have been with us for five years, and we continue to grow with them every year.
Success with adding new clients, it's been a big change in the past six quarters and simply we become better at targeting and closing the right clients.
Our sales and marketing team and their leadership is performing well and I want to recognize them for a job well done.
Other major factors driving new client additions are favorable secular trends, including increased pressure for large companies to improve sustainability.
And to comply with the ever increasing regulation.
In addition increased prices for landfill and tipping fees are shedding more light on the waistband, among larger companies and enabling us to start conversations with prospects about how we can improve sustainability of the waste streams in a cost effective manner.
Clearly our value proposition is resonating with clients.
Our ability to perform a uniform and audible dataset across waste streams for Houston sustainability.
And operational reporting is playing a big role in our selection among new clients.
By centralizing all of our clients waste streams requests, we're able to can prove commissions fees and maximize value from commodities, which has also played a large role in being selected among new clients.
Yeah.
Now I'll give you an update on recent wins with new customers.
New customer wins during 2021 and continued to ramp during the fourth quarter and are increasingly contributing to our growth this year.
During the fourth quarter, we had a large win with another new industrial industrial client, which we discussed on our last earnings call.
We began to onboard this customer that customer this quarter and we expect to be fully implemented before the end of the year.
We expect this client to win a client win to generate annual sales in the mid seven figure range with opportunities to expand the relationship above a figures with additional services.
Finally, we have many new opportunities in our pipeline.
I feel confident we will have similar similar success securing new customers during 2022.
The other major driver for our growth has come through acquisitions.
We've accelerated our M&A efforts since the end of 2020 and continue to expand our pipeline of potential acquisitions.
I want to emphasize that we will continue to maintain discipline in making acquisitions and will only execute those that fit our criteria.
Going forward there'll be years like 2021, when we find several good deals that fit our criteria.
But there also may be periods, where we don't find any.
I want to note that M&A growth is not a growth strategy by itself.
M&A will continue to be a driver of growth for our business, but it's only one of three growth drivers and the other two are the other two are penetrating existing customers and of course, adding new customers.
We completed two acquisitions in December in stream and our Ws. These.
These acquisitions expanded our service offering and offer significant opportunities to cross sell to the combined client base.
Those customers will add to our roster of industrial clients, having greater scale in this end market will benefit us our customers and our vendors.
In addition to expanding our presence in the industrial market, our Ws gives us a more meaningful position in the commercial property management market.
And in February we announced the acquisition of another company that further adds to our presence in the market that market.
The commercial property management and market is very large and includes large national companies that manage office and retail properties.
This end market is very well suited for our service offering and our value proposition.
The larger clients in this market under a lot of pressure to increase diversion from landfill.
And a large vertically integrated players don't have a competitive service offering in this area.
These clients also find our ability to collect and provide uniform reporting data.
Compelling.
Regarding our outlooks pressure to improve sustainability, and increasing cost of landfills or lowering the bar for adoption of our recycling services.
We continue to view of inflation is a net neutral to our business as our contracts have mechanisms in place to adjust.
The contribution from new client wins will continue to provide incremental growth as we onboard these programs.
We're investing in personnel technology and processes to further grow gross profit dollars into enhance customer service levels.
Acquisition activity is continuing and we expect it to be an ongoing contributor to our growth.
Based on all of these factors and the business. We have in hand, we are optimistic we will continue to expect positive momentum in 2022 and for the next several years.
I look forward to keeping you updated on our progress we would now like the operator to provide instruction on how listeners can queue up for questions operator.
Thank you if you'd like to ask a question. Please thinking about pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off till I your signal to reach our equipment. Once again that is star one if you'd like to ask a question.
And we'll take our first question from Gerry Sweeney with Roth Capital. Please go ahead.
Good afternoon, Ray and Lori Thanks for taking my call.
Yes, Hi, Joe Hi, Gerard.
Uh huh.
That's right.
I played my parents for that one.
Ray do you sketched out some of the organic growth you're seeing or some of the reasons, but also I also was curious about maybe some other items.
If if the sales cycle was picking it picking up or at least lessening in time that.
That it takes to land customers and also.
If companies are becoming more and more comfortable with your service as they see more and more.
Clients, joining our roster and then the final aspect just.
You've made some changes internal sales operations over the last couple of years I'm, just curious as to how much of that maybe.
Until there Gerry.
Yeah.
Okay.
Yeah. Those are all three questions are related to the sales process I'll try to answer them.
The first one give me the first one again.
Sorry, I just looking at your sales cycle picking up sales side.
The sales cycle jewelry is a I would say it's tightening a little.
Customers move the customers pays a lot of times the larger ones are well naturally a little slower, but I will tell you one of the things and this goes back to some of the other parts of your question is the targeting.
I guess the sophistication level of our sales process is and who we're targeting to go after.
The best the best targeting yields a much higher close rate.
And probably accelerating.
Accelerating the sales cycle as well if you're talking to the right customer at the right time and you have the right service.
They have a tendency to move Uh huh.
More smoothly and I want to credit the sales department for Cigna.
Significant improvement in that area and as to your question about maybe the acceptance of.
Our business model as a service.
I think yes, and you and I've talked about this before the quest quest is a bit of a paradigm shift for many of these larger companies.
Many of them have decentralized manage on your own processes and turning it over to somebody like US is that maybe a natural first move.
But we've been very successful way of reference customers and and I would say.
That continues to become less of a very over time and I can say I expect it to continue to.
So eventually not be a barrier at all actually.
Got you.
That's helpful and then.
From a sales pipeline perspective is there any way you can give us any quantitative qualitative view as to how this.
Looks currently versus maybe a year ago.
I can give you.
It's hard to give it a quantitative view in the sense that what are you comparing it to right because pipelines have got a lot of stuff in it.
And I've been in situations, where we had really huge pipeline set.
Really didn't.
Or because of the ability to close them. So I haven't I think I would describe our pipeline I think it would be more descriptive rather than numbers is the fact that I think it's I.
I think everything on there is viable and it continues to move left to right.
I don't have an ever increasing pace.
The type of I will say this I think the type of customer that's been targeted and we're bringing on board or maybe larger than some of the ones. We had in our pipeline that had more names on it but.
I think I've said this to you or somebody this weekend at your conference I I've never felt better.
<unk> about where we are from a customer pipeline standpoint than I do today, Jerry I mean, it's a.
There's not a single one on there that I think is questionable they all look strong.
Got it and thought of as though maybe some of those opportunities.
Opportunities are increasing as well as potential size of some of the opportunities not trying to put words in your mouth, but okay got it.
Those are good on that.
Technology side, obviously spending some more money on the software side, you know it well.
What.
Where do you see the technology side going in terms of service what the spend on this this year. This it sounds like it's more on the it side, but in the future technology could obviously be a benefit as well. So just wanted to think about what's happening on that front.
I think our current and near future State and then distance they are much further out state speaker in this context.
Current and near future our technology investment is much more I T related.
But there isn't an end, but this is how it manifests itself as far as business practice and what impacts the business.
First.
We're getting ahead this growth that we have is wonderful and we got to make sure that we continue ahead of that growth to expand our scalability and our capability to.
Leverage to the operating the Opex with the increased technology and automation and all that fun stuff that enables our growth both of all types.
Then secondly.
By collecting better and cleaner more accurate data in your data warehouse as you work on that we were able to give customers cleaner more timely and accurate data as well. So we really feel our current technology differentiator as data I mean in the market.
It seems to be accepting that.
We're looking for it they're not just looking for a lot of our competitors that you're putting out there given that data, but it's a point in time its static.
It's not a live document you know like our stuff is and I don't think its as useful and so our goal is to make sure that we're giving customers our customers our clients very useful information.
Because theyre reporting requirements are doing nothing but growing as you know.
And if we're able to give them better data to do that longer state technology could involve a lot of things I mean technology in <unk>.
Monitoring of of you know.
Waste and dynamic routing and fun things like that that's all out there in the future.
But what our clients are looking for right now I think is usable accurate timely data. So that's where we are gotcha. One final question then I'll jump back in line gross margins on acquisitions.
Yeah, you had a filing out on our Ws and it looks as though those gross margins are above corporate average is that a function of just how tight you know some of these companies are rather small and they're running a pretty tight.
Sort of G&A or SG&A program.
Or will they be able to maintain some of that gross margin that they had once you integrate it how do we look at that.
So Jerry the our WNS has we mentioned it already on the call. There are a mixture of the industrial side and the services. We also typically do and they also have a big presence and real estate.
Particularly retail market.
So there there's going to be similar to us I think in margins I think they also were going to vary quarter to quarter, depending on their mix of services because they do have that commodity aspect.
And then they do.
Do you have sort of a steady state sort of at steady state with the the retail side.
So the way I could sort of help you think of it is there going to be very similar to us, but they will have fluctuations.
But I think somewhere in the range that we have here in our core business.
Got it okay I appreciate it thank you.
Thank you Jerry.
Thank you we'll take our next question from Erin <unk> with Craig Hallum.
Hi, Ray Hey, Lori Thanks for taking the questions.
Hi, Aaron.
You know first on the competitive environment are you now seeing increasing M&A in the market from majors and then also increasing activity in the mid market can you just talk about any impact you're seeing on the business from that.
Are you talking about M&A activity like in our space, how it's affecting our baseline I think maybe the vendor side, Okay deliverables got you.
You know what are the beautiful things about this business it seems to be bottomless as far as the ability to find good quality companies that.
Are looking too.
Partner with somebody like us to enhance their their earnings. So we haven't seen there those consolidations haven't created this issues and on the on the waste side I've got a couple of questions on those are and I think you and I may have discussed it.
They are consulted a company by a company that we already do business with you know in many cases, so we haven't seen any restriction or limitation for me the services, we perform from anybody through that aspect yet.
Alright, and then you know maybe second on kind of new markets, New waste streams can you just kind of give us an update there and maybe talk a little bit about probiotics and just some of the kind of gating factors until we kind of see that you know maybe you start to pick up and just any thoughts on what.
She might look like.
Well.
Organic so I'll go back to a question Jerry asked earlier about sales cycle. That's one that's a very long sales cycle, but because it involves a lot of change.
From the customer side.
Be able to take advantage of that there's a lot of interest in it working on it.
Well, what we have now is growing and we're really got a great pipeline of new customers you bring on it's just that's a particularly slow sales cycle.
Other other new waste streams that we actually acquired a couple from our friends at our Ws.
Waste streams that we werent handling before for recycling types of waste streams and so that's nice to add that had been doing well with that and then the other acquisition that we made with industry I'm actually just enhanced the scale.
Of existing waste streams that we have so it's beneficial on both sides.
But yes, we've added a few and we definitely are you know as we had waste streams, there and a lot of it's driven by.
Customer need right.
Have a they have a waste stream they are generating and its challenging or.
And they come to US quest has always been a.
Kind of a solution based company, even if we aren't doing it now we'll find a way to take care of that issue for them and it. It ultimately ends up yielding itself in a new waste stream force so as they come up we'll continue to expand.
Gotcha, Thanks for taking the questions and I'll hop back in queue.
Thank you.
Thank you, we'll hear next from Amit Dayal with H C Wainwright.
Thank you good afternoon.
Great just to.
They can do the fourth quarter revenue strength was this is fairly new clients when was this.
Contribution from acquisitions.
You jumped by almost $10 million sequentially I'm.
I'm just wondering you know what drove this and you know going forward are these the levels, we should sort of be thinking or are on a quarterly basis or could this be even stronger given some of the contributions from the December acquisition.
Well I mean.
First of all thanks I appreciate the I appreciate the questions.
I'm really proud to say that three legged stool for lack of a better term that I've used as an analogy in the past is all contributing to that let the strongest piece.
Came from clients, we already had and clients that we brought on here in the quest base I mean, a huge contributor but we also obviously in December we didn't have any obviously the benefit of that revenue from the acquired companies until.
Until December so we really had a great representation of organic growth do you want to comment to that.
Sure absolutely so when we were talking about.
Quarter, we had even though that even a better bet over Q3 with our core business, but a substantial piece did come from those acquisitions in December.
I think that jump you saw was driven a lot by the acquisition, but it was also supported by our continued.
Growth quarter over quarter sequentially. So.
Going forward, we will have those acquisitions, they will be contributing towards every quarter.
If that answers your question Yeah, we will have those new customers and we'll have those are one of the nice things Amit when we've talked about before when you're penetrating existing customers and new locations New service lines those.
Those typically are a recurring.
There's a chance for that wave of growth benefit as you move through the rest of the year for the next year.
Understood. Thank you for that.
And then from a pricing perspective Reed do you have room in your contracts to raise prices and also the duration to these acquisitions are you tied in any way to contracts that may prevent you from sort of you know passing on any inflationary costs in the near term.
I will tell you that in general I mean, we are.
Of course, everybody is aware of inflation and the vendors that servicer or are in the same spot as everybody else.
And.
We as a rule have been very successful as a company and deferring a lot of that and not and not accepting those increases because remember one of the things we have is a very.
A very flexible book of business, where we can move volume and tonnage around which may take the place of some of those other concessions I won't take my hat off to our vendor relations sourcing team. They do a great job of that because we really haven't seen.
Nearly the amount of inflationary cost that that the market would say that there is but there is some of course in those are going to happen because we want to we want our suppliers to be profitable and we have a we have arrangements in our customer contracts that allow us to have conversations and.
CPI type things in kind of a.
Alex that out it may not balance immediately but ultimately it will based on that it is not an immediate thing like once something goes out service goes up a dollar of the the price of the customer goes up a dollar it goes.
There is some lagging there, but we definitely have mechanisms in place to allow us to be.
Relatively neutral through this process.
Okay. Thank you that's all thank you you bet. Thank you.
Okay.
Thank you and once again as a reminder, that is star one if you'd like to ask a question.
Take our next question from Nielsen the ovens with Winfield capital.
Yeah, Hey, Ray I was I was curious about the onboarding process because it occurs to me that if you go.
To present to a new customer you've got that all marked out what youre going to do and I think you mentioned in it.
I picked it up right on the call that it does take a period before you onboard. So I'm curious what exactly are the steps you need to do to.
To integrate a new customer.
That's it that's a great question Nelson and I will tell you. The standard answer of course is it depends but to give you a couple of buckets of Onboarding examples.
Yeah, not too distant past, we on boarded up on board at a.
Large quick curious our quick service restaurant chain.
One day, we didn't have it the next day, we did it was an entire over 1000 <unk>.
Okay. She is well over 1000 that would that we the Onboarding took 24 hours because of the planning ahead of time as the nature of the business, but typically.
You moved through the organization.
It's more I would say Nelson the restriction is it doesn't really isn't anything to do with quest. So much as it does with the well the multi unit multi location customer absorbing those changes because we represent a big change like for manufacturer example that has you know up to 100 waste streams are a lot of complexity, we represent a lot of change to their order.
<unk> at the location because they had multiple vendors multiple suppliers, we have to train a little bit there's training that's involved.
So that's typically what we're looking at are on boarding on these more complex customers theyre very rewarding tremendous customers.
Is there a little more effort to help them get on board with the program.
Got it and then just a different follow up question from a cash flow perspective.
The integration and acquisition costs.
Manifesting in Q4 as it is that a one time do you expect those assuming you don't make any more acquisitions will that trend down as we go through or be eliminated completely as we go through 'twenty two.
Yes Nelson the.
Item that you're talking about yes has.
A trending down yeah, it can be integration costs, such as a consulting fee to the prior owner it.
It could be legal fees that occurred right at the transaction date. So they are sunset it over a period of time.
Right. So by the time, we get to say Q3 of 22, it unless you make another acquisition.
Probably won't see that on the P&L right fair enough.
Certainly at lower levels, just any kind of integration cost that we still have ongoing from these December acquisitions got it. Thanks.
Thanks Nelson.
Thank you we'll take our next question from Greg Kit with Pinnacle Fund.
Hi ran Laurie Thank you for your hard work and a good quarter.
Thanks, Craig.
So we've been a shareholder for several years now it just feels like you're in the right place at the right time as companies continue to focus on internally mandated externally regulated ESG goals and you announced the four material new logo wins last year that could add $20 million of revenue annually. Once they are fully ran.
I think I heard you correctly in saying that more than half of your 2021 gross profit dollar growth was organic which was exciting to me because that implied that.
Gross profit dollar organic growth was more than 25% last year and this is a little bit of a follow up on what Jerry was asking can you help us understand.
Or talk to the changes in the sales organization that had been a catalyst to this better qualification of your leads a better conversion of your funnel.
Yeah happy to actually Thats right. Jerry did ask that I think I may have missed this as a multi phased question.
The sales structure is the same.
As far as the but the people that are staffing. It we've had some changes over the last year and a half and we've added some strength at the sales side the sales professional in our space, Greg needs, a deep rolodex and frankly, a pretty extensive experience space and youll notice some of the success we've had in manufacturing.
And industrial that takes an even deeper knowledge base and so these folks have it goes back to I don't know if theyre more accounts or less accounts on the phone because I care less about that I care a lot more about the quality of those accounts splitting our profile that we've described and having them move to the right and have our closure rate be higher.
It was before in a definitively is but theres a lot more than just hiring smart people to go do that we have a process in place.
Clients like client mapping, where we just do lots of research and work on on knowing this client understanding the multi phase of pricing get them onboard.
Thank you I'm on the data and reporting I was excited to see that there was a little bit more disclosure around your data and reporting in the 10-K, because I've always thought about the your data and reporting to customers is really valuable and a differentiator.
Because you allow your customers to divert ftes to other tests and you provide better visibility into their ESG goals.
But I wanted to hear a little bit more what are those what are those reports what are your customers say those reports enable them to do.
Well I can tell you in.
In general first of all I appreciate that recognition, we believe it's a big differentiator as well.
This data allows customers to have visibility into waste streams.
And be able to meet the obligations they have not only reporting externally, but the commitments they have internally to diversion and other types of goals that fit into the overall ESG structure. So.
So I think I think the thing that's most appreciate it appreciate it Greg is the breadth of services that we track because we perform those so they don't have to have 27 different types of documents from different companies to be able to have visibility into their waste stream performance. So I think the consolidation.
The accuracy and the timeliness or all three differentiators thats, helping them.
Well, its helping them in their and their goals, which thankfully they have those goals that helps us.
Okay.
Thank you to two more on <unk>.
So now youre solidly in growth mode, which is great considering where where you were when you joined right.
Can you just talk about the quality and the size of the leadership team today and now that you are in growth mode, you need to be positioned to grow.
From your current organizational base, how do you feel about that and and just generally how do you feel about your team today versus a couple of years ago.
I appreciate the opportunity to speak to that because that's my favorite subject.
We've got the same top management that you've known since you've been invested with Laurie and Dave.
But as we've grown there's only so much. These folks can do we've really added a lot of strength around them and the organization one of them on the we added well rentals who's our senior VP of strategy and our focus is on <unk>.
Systems scalability integration.
Everything will does and he has a huge track record of being successful in this he came on recently I think in December maybe no November.
That he adds a tremendous amount of capacity for our growth both external and internal with those pieces. We've added for example in there and Theres a lot I'm not going to name them. All we've added quite a few.
We had a gym L. A is our VP of operations to help.
Sustain that growth, there's a lot of things they've swatch, we used to do that now Jim does in Dave's able to expand what he does all of it is about expanding what we think is already what I believe is already a really great core of folks and giving them more and more capacity to do more and more things along with our growth.
Thank you and then my last question the one I always ask about it.
You know ive always liked that.
50% of your incremental gross profit dollars can contribute to EBITDA and then EBITDA converts nicely to free cash flow do you foresee any specific investments or changes besides that $500000 that you want to invest on to be able to improve the platform scalability.
And integration.
Is your business.
Is there anything in your business that could materially affect that ability to kind of have that high conversion rate from gross profit dollars to EBITDA.
So there are going to be additional capital expenditures also on the technology side.
We have been.
Yeah, our expenditures in that area have been small so they could be equivalent to another say half millions of millions just depends on the timing of the projects that doesn't be capitalized type costs. So I just want to point that out so.
So those are really don't affect your P&L, except over a period of time and the other thing as we are learning more and more about the companies we acquired.
Some of them have a different operating model than of course, our quest core business and so Greg as you're asking about is there anything that could affect him that leverage we definitely see leverage continuing.
But is it through the exact same formula than it was before I think there could be some things that are a little different the business at our type of assets are real real estate business is a different model than <unk> core business and so we'll be examining that and making sure we integrate and make the changes.
As best we can.
But we I can't give you a clear direction on exactly the amount.
The amount of leverage that would go through.
Okay.
It will continue it will continue at a very healthy pace.
Right.
Okay. Thank you very much I'll cede the floor.
Okay. Thank you Greg.
Thank you and we'll hear a follow up from Nelson <unk> with Winfield, Yeah, just a quickie in a growth mode I would imagine that your vendor turnover could increase is that right or is that even a metric that you follow.
Vendor turnover, meaning.
Losing them in and gaining some is that what you're saying yeah. I mean, there may be a tough yeah like employee turnover on the vendor vendor can't can't accommodate a new customer because the waste streams are too complicated and so you have to reach out to someone else or.
Andrew Yes bacteria.
I don't know if you track that but just a little color on that Oh sure.
I know exactly what you're saying is we've added new lines and added new customers with greater needs and grow and more expansion geographic I mean, all those things lend to.
Put more and more I guess pressure for lack of a better term on the our vendor's ability to perform luckily.
If you're a if you're a vendor for us performing well with your particular waste stream youll get to continue to do that.
We will build around you with new vendors were outside of your capabilities and we've been expanding those debt that roster.
Quite a while now Nelson so we're in a much better position today I believe to handle this growth through our vendor base than we were before but we're really not having to turn them over they are able to stay that's one of the great things about our model right. If we're serving somebody with 100 locations. We can utilize as many vendors as we think is the right amount to get the job done. So we just add.
Rather than turnover, maybe does that answer your question. Yeah. You can you can upgrade a vendor.
Oh, Yeah, Yeah got it thanks.
You bet.
Thank you, we'll take a follow up question from George Melas with MK management.
Okay.
Thank you Hi, Ray Hi, Laurie.
Hi, George.
Congrats on a fantastic year.
Thank you very much thank you.
You talked about.
A few years ago, you were primarily.
We gave an auto now you were sort of a lot more diversified can.
Can you talk a little bit about where you see the fastest growth where do you. What do you have this new pipeline and it seems like industrial you didn't really have a lot of reference is two or three years ago. Now you do and those are fairly large customers.
And is that a meaningful part of the growth that you see.
I think it's a very meaningful part George.
And there are numerous reasons why I think first and foremost what.
Heavy industrial customers need it's a complex business relative to their waste streams. They generate plus they also have all of them have big goals relative to sustainability.
And they also have a lot of regulatory risk in many cases right all those things kind of ring our bell.
And in our ability to consolidate and we give them the data they need across numerous plants.
They're reporting in operations I think is another distinct or all that adds up to the fact that I think our team has done great across all of our end markets, but industrial is represented significant growth and I really think what we're doing today what the team is able to do for those folks is going to continue to feed that growth in the future.
Okay.
Just from a competitive perspective do you see sort.
So those new competitors entering the market or is it or are you sort of further differentiating yourself.
Existing competitors.
I think we are further differentiating ourselves to I may have I may have a biased opinion.
But I really haven't seen new ones come in and I've seen some tried to expand beyond there.
Previous limits as far as what they serve.
And the good news for questions. We've we've never really had any limits as far as what we do is what what our customers want.
And so I think I think we are doing a much better job of further differentiating ourselves and and I will say this I think we're doing a better job of telling the story of the differentiation we already had.
I think that's a part of it to George team is doing a great job.
Great. Thank you.
Thanks George.
Thank you and that does conclude today's question and answer session I would like to turn the conference back over to Mr. Hatch for any additional or closing remarks.
Thank you operator, thank you very much I just wanted to thank all of you again for your interest in Quest I've got the best job in the World I get a chance to represent all the hard work. This team does and I'm very thankful for them.
Their ongoing efforts, bringing value to our customers and also to you the shareholders.
All of our initiatives are working very well and we've gained a lot of momentum in recent quarters I feel we are still in the early stages of our growth efforts and we have a long road of profitable growth ahead, and Thats a great place to be we look forward to keeping you up to date on all of the quarters to come and once again. Thanks for your support of Quest. We appreciate it.
Thank you that does conclude today's conference. We do thank you all for your participation and you may now disconnect.
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