Q2 2023 Quest Resource Holding Corporation Earnings Call

Speaker 1: Thank you for standing by. This is the conference operator. Welcome to the Quest Resource Holding Corp. 2nd quarter, 2023, earnings conference call. As a reminder, all participants are in lesson only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question, Q, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero.

Speaker 2: I would now like to turn the conference over to Dave Mosberg, Investor Relations representative. Please go ahead. Thank you, Oceia. And thank you, everyone, for joining us on the 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 the words like anticipate, project, estimate, expect, and tend, believe, and other similar expressions are intended to identify those forward-looking statements.

Speaker 2: Such forward-looking statements are based on quest current expectations, estimates, projections, beliefs, and assumptions, and involve certain significant risks and uncertainties. Actual events or quest results could differ materially from those discussed into forward-looking statements as a result of various factors which are discussed in greater detail.

Speaker 2: In quest filings with the Securities and Exchange Commission, the work caution not to place undue reliance on ship statements and to consult our SEC filings for additional risks and uncertainties.

Speaker 2: Quest forward looking statements are presented as of the date made and we disclaim any due to update such statements unless required to do so by law. In addition, in this call we may include industry and market data and other statistical information as well as quest observations and views about industry conditions and developments.

Speaker 2: The data and information are based on quest 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.

Speaker 2: or the accuracy of the information. Certain non- GAAP financial measures are also discussed during the call. These non- GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate company's current performance.

Speaker 2: Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding of the assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise noted, it should be assumed that any financials discussed in this call will be considered. Thank you.

Speaker 2: 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 Chief Executive Officer.

Speaker 3: Thank you, Dave, and thanks everyone for your interest in Quest.

Speaker 3: We gain momentum during the second quarter with another significant increase in sequential financial performance.

Speaker 3: The 13.5 million in gross profit and the 5 million in quarterly EBITDA was the second highest gross profit in EBITDA quarterly performance in the company's history.

Speaker 3: Adjust the deba da increase 26% and gross profit dollars increased 7% sequentially.

Speaker 3: Most of the growth came from wrapping up new clients and penetrating existing ones.

Speaker 3: Improvements at RWS also contribute to the sequential increase, and we expect the business to provide a strong incremental contribution going forward.

Speaker 3: We also generated significant cash flow during the quarter and expect to be a strong cash generator this year.

Speaker 3: We've used a bulk of cash flow to reduce debt levels. Subsequent to the end of the quarter, we paid down another 2 million on our line with Monroe Capital for a total reduction of 7 million here to date.

Speaker 3: We continue to gain momentum during the second quarter, and we're executing well with our strategies. And we are on plan to deliver double-digit growth in gross profit dollars and adjusted EBITDA for the year.

Speaker 3: Onerant now turn the call over to our CFO , Brett Johnson.

Speaker 3: for financial overview, and I'll be back to discuss progress on our strategies. Brett?

Speaker 4: Thanks Ray and good afternoon everyone. During the second quarter, we saw a strong sequential comparison in gross profit dollars, which increased 6.9% from the first quarter.

Speaker 4: This improvement reflected organic growth from the continued ramp of new clients and from penetrating existing ones.

Speaker 4: The sequential comparison also benefited from the integration work that we have done to adopt standardized processes across acquired businesses.

Speaker 4: This includes the full benefit from realizing contracted pass-through costs at RWS, which we discussed on previous calls. I want to make a note about your over your comparisons.

Speaker 4: As we discussed on our previous earnings calls, the integration challenges at RWS during 2022 impacted year-over-year comparisons and mass the improvements we have achieved for the first half of 2023.

Speaker 4: Given the unique events of last year, we think sequential comparison is a better indicator of current performance and momentum.

Speaker 4: As discussed on previous calls, prices for recyclable materials may have an effect on revenue but has not historically had significant effects on gross profit dollars, and this last quarter is no different. Our client agreements

Speaker 4: Produce consistent gross profit dollars based on volumes and are not tied to fluctuations in the price of recyclable materials.

Speaker 4: The value of the materials we recycle on behalf of our clients.

Speaker 4: I want to reiterate that this is why we use gross profit dollars as a key metric to measure our financial comparisons. Looking forward, as Ray mentioned earlier, our outlook for gross profit dollars for the year is robust, and we were main confident in our ability to deliver double-digit growth in gross profit dollars for the year. Gross profit dollars should benefit from continued momentum in organic growth and continued improvements from our integration efforts.

Speaker 4: As you look at modeling out our business for second half of the year, we suggest that you model for continued sequential growth in gross profit for the third quarter and adjust for normal fourth quarter seasonality.

Speaker 4: Moving on to SGNA expenses, which were 9.2 million during the second quarter, compared to 9.3 million during the same period last year. We are ahead of schedule with integration and expect integration costs to be lower during the second half. As we expect to finish up those efforts, mostly by the end of the third quarter.

Speaker 4: We are also expecting to gain efficiencies from integration efforts and recent investments we have made in our platform.

Speaker 4: We expect to continue to invest some of these savings and to grow the initiatives that further improve efficiencies and increase our ability to bring value to our customers.

Speaker 4: As a result, we expect S-GNA expenses will average about 9.5 million per quarter, which is flat in comparison with the back half of last year.

Speaker 4: And then we will start demonstrating the leverage in the platform both in adjusted EBITDA dollars and EBITDA margin.

Speaker 4: During the second quarter, depreciation and amortization was 2.5 million flat in comparison with a year ago.

Speaker 4: And we expect depreciation and amortization to be approximately $10 million for 2023. Therefore, to reiterate, for the back half of the year, we expect to see growth in operating leverage and acceleration in adjusted EBITDA, as double-digit growth in gross profit dollars is leveraged over a relatively smaller increase

Speaker 4: wise and continue to enhance our liquidity.

Speaker 4: Our cash balance was 3 million at the end of the second quarter, and we have 5.5 million drawn on our $25 million operating borrowing line.

Speaker 4: We produced strong operating cash flow during the first half of the year, generating $3.3 million during the second quarter and $6.3 million near to date.

Speaker 4: This improvement came primarily from improvements in working capital management.

Speaker 4: I will note that operating cash flow for the first half of the year included a $1.2 million acquisition-related earn out payment.

Speaker 4: without this payment, first half operating cash flow would have been 7.5 million.

Speaker 4: Our working capital demands will continue to fluctuate based on the pace of growth, which may cause fluctuations in operating cash flows from quarter to quarter. Nevertheless, we expect to be a strong cash flow generator during 2023.

Speaker 4: During the quarter, we paid down $5 million on our credit facility with Monroe Capital, and subsequent to the end of the quarter, we paid down an additional $2 million on the Monroe facility. The balance of the reduction reflects normal principal payments and a lower borrowing on our asset-based line with PNC. In this high interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management.

Speaker 4: Carrying less cash and minimizing our borrowings on the line of credit. Through these efforts and the reduction in borrowings from Monroe Capital, we expect to reduce interest expense by approximately 1.2 million on an annualized basis at today's rates. At this time, I'll turn the call back to Ray.

Speaker 3: Thank you, Brett. I want to start off by saying how excited I am about what life they have for Quest for the balance of the year and the next several years.

Speaker 3: For the last 18 months, we've had a heavy lift to manage significant or granite growth and integrate acquisitions.

Speaker 3: While acquisition integration has not been perfect, those issues are behind us now. We've learned a lot and we continue to enhance our client value proposition. And overall, I'm very proud of the job the team has done.

The business is firing on all cylinders, and we've gained significant momentum over the last two quarters, and I'm really excited about the profitable growth we have in front of us for the balance of this year and for the next several years.

Let me make a brief comment about the macro environment and concerns over inflation and economic uncertainty.

The good news is that the waste business is generally resistant to recessions.

Our clients, which are primarily large businesses with multiple locations, continue to generate waste during the top and the bottom of the cycle.

and our model is agnostic to price swings and recycle materials. We can pass through increases in cost, searches, such as fuel, search charges.

Because of this, we feel like we are well positioned to endure economic headwinds. During the second quarter, we continue to see stable activity levels across our end markets.

and we managed to cost pressures and fluctuations in the price of recycled materials well. Moving on to a discussion about growth.

I feel very good about organic growth we have in front of us.

We saw significant sequential growth in gross profit dollars during the second quarter and we expect that momentum to continue into the back half of the year

We have multiple sources of growth that gives us confidence in our ability to post double-digit gains and gross profit this year.

First, as we pointed out in the press release, we had a win with significant new client in a new end market vertical. This win has potential to grow into eight figures annual revenue. We expect to begin the onboarding process, September 1, and in the engagement, ramp up over the next 12 to 24 months.

We are starting with a small portion of the 380 locations and 2X and expect to handle about half of dozen waste streams.

Previously, this client was handling their solid ways to a vertically integrated national provider.

and handling especially waste streams on a site by site basis.

The major selling points for our service were our cost effectiveness, alignment to divert a greater portion of waste from the landfills, and the added visibility we can provide with our data platform.

There are a few large players in the end market, and we are pursuing peers in this space.

The service we provide for this client will have some overlap with our capabilities into existing waste streams, but also give us the scale required to add capabilities for new waste streams.

that we will in turn introduce to our existing clients.

Second, we have Apple opportunity to grow with our existing client base.

Our Lantern Expand Strategy has consistently delivered solid growth for the next five years, for the last five years.

And we feel like there are ample opportunities for continued growth from our existing clients.

for multiple years to come. Another source of organic growth comes from new service capabilities gained through acquired businesses.

We've added several new service offerings with our recent acquisitions, and we're actively introducing those new services to existing clients.

As you know, we've also developed interactively marketing of food waste recycling service we call Proganics. One of the largest materials going into landfill is food waste. And our Proganics service can help grocers deliver as much as 100% diversion of organic waste from the landfill.

For many, that can equate to a reduction in a total amphil of 70% or more.

We recently received a patent for this new and innovative service.

We have a lot of interest in our active conversations with several large prospects for the service. We have a lot of interest in our active conversations with several large prospects for the service.

Growth will also come from continuing to rollout services to several of the significant wins we've discussed over the past 18 months.

As we've discussed before, in some cases, it can take 12 to 24 months to fully wrap clients. And there are several new clients that were in the process of ramping.

which will provide embedded growth for the at least the next year.

In addition, we continue to add new prospects across multiple end markets that are working their way through our pipeline.

Our main coffin that we will have success at securing sizable new clients during 2023.

I would also note that there are large opportunities and a win with any of them can provide meaningful contributions to our growth and maturity.

We've also hired additional talent to help us bring in new large clients. We announced last month that Perry Moss is joined Quest as Senior Vice President of the Sales.

Adding Perry is a big win for Quest. Perry has a 30-year track record. He's a thought later, has strong relationships with the client base and other players in our industry.

He's well known for his deal making capabilities and securing major account wins.

Over the last three years, we've more than doubled the size of the business, with about two-thirds of that growth coming from acquisitions and new clients.

As we bring revenue under our platform, we've proven our ability to optimize cost of services through vendor relations.

and procurement management. This includes activities such as right sizing and route optimization and leveraging the overall fixed cost base. We're going to market whether we're going to market whether vendors focused on win-win contract provisions by adding volume from the entire Questfoot print.

Fenders can benefit with greater utilization and lower costs for route optimization.

Quest benefits from lower costs, which has a positive impact on the pricing for our clients.

Now for an update on acquisition integration.

We've completed integration of five of the six acquisitions that we've made since we began a proactive emanate strategy in 2020.

Having all of our acquired businesses on a single ERP platform gives us greater visibility, as well as greater efficiencies and cost savings. All of the heavy lifting has been done to integrate RWS, and we should be completed before the end of the third quarter, which is about a quarter ahead of schedule. Integration work is not easy, and I want to thank our team for their extra efforts and light hours to complete this process. We went through a steep learning curve with these acquisitions, and we've honed our skill set in terms of evaluation and integration planning. We're clearly in a better position to execute on M&A strategy going forward.

Before I move on to our outlook, I want to talk a little bit about our investment we're making in technology. For years, we've been quietly building a scalable platform that uses technology to increase our customer value proposition and increase our efficiencies. Our philosophy has always been to develop and utilize technology so that we can provide a rapid return on investments for us and for our clients. Our focus has been on investing in technologies based on direct benefits that can provide to our customers.

The technology platform we've built has been the key deciding factor for several competitive wins and have helped us maintain our enduring customer relationships due to the incremental value that we provide. In recent years we've stepped up investments in our technology platform so that we can stay ahead and continuously improve client value, efficiency, and scalability. I want to give you a few examples of technology developments that we've recently brought online. We've recently introduced a sourcing tool for our vendor relations team.

We've also launched a new vendor onboarding system that better automates the process for bringing on new vendors. This will generate cleaner data internally, which drives greater efficiency and improves the overall client service. Now an update on our long-term strategy. We worked hard over the last few years, building scale, diversifying our customer base, strengthening our balance sheet, and then building a strong management team. And are pleased to be in a position to actively evaluate, prioritize, and pursue a set of initiatives to support a growth, efficiency, and customer value add.

As part of our commitment to maximizing long-term shareholder return, we've launched a long-term strategic planning process with the support of our board of directors in order to prioritize and invest in the most attractive strategic initiatives.

As you know, over the past few years, both Quest Board and Management has grown and changed and includes highly accomplished professionals with expertise in strategy consulting, corporate finance, M&A, waste industry operations, and in technology.

Regarding our outlook, our positive outlook for profitable growth has not changed. We expect to be a strong cash flow generator during 2023. We expect acquisition integration to provide incremental contribution from both increased efficiencies and cross-selling. We have multiple sources of organic growth, including doing more with existing clients, ramping with recent wins, and converting prospects into clients. We will continue to drive operating efficiencies, investing capabilities to continuously improve our client-value proposition.

while further improving the profitability and scalability of our business. Pressure to improve sustainability, increasing regulation, and increasing cross-of-landfills are lowering the bar for adoption for recycling services.

We're optimistic we'll continue with a positive momentum for 23 and for the next several years.

I look forward to keeping you updated on our progress.

We now like the operator provide instructions on how listeners can queue up for questions. Operator? Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys.

To withdraw your question, please press star then two. The first question comes from Aaron Spihala, but Craig Halem, please go ahead. Yeah, hi, Ray and Brad, thanks for taking the questions. Yeah, you're welcome.

First for me, can you talk a little bit about the vertical for this new customer and maybe some of the key waste streams that are there? And then just, you kind of talked about other new business wins. Are you starting to see any improvement in the timing of closing a new business?

given the kind of value propositions offered in the face of high landfill costs and intern on external requirements for customers.

We found the desire for data reporting is also creating a lot of opportunities for us to have conversations. So we have a number that we feel really good about that are right on the goal line. So that's why I was so optimistic in my comments relative to future growth along with existing clients. As far as the new vertical, I'm a little hesitant. It's not a big vertical as far as number of players in it. So I don't want to get too detailed on it, but it's a large commercial company that has a lot of different waste streams. They're not manufacturing, but...

They have unique needs. They're more in the freight and transportation type of space, which brings not only new, I want to emphasize, it's not just the new waste streams, although that's always important. It's the scale brought to us with existing waste streams. It may not be that big for us today that allows us to play in a much...

larger space both in scale and in geography associated with that. But we it's a vertical that has a tremendous amount of potential.

I believe that it's, matter of fact I know, that it's left of its own devices to location. In many cases there's not a unified database for reporting and they're having to go with multiple pain points to solve their issues and we can do all of them.

I believe that it's, matter of fact I know, that it's left of its own devices to location. In many cases there's not a unified database for reporting and they're having to go with multiple pain points to solve their issues and we can do all of them, if that helps here.

No, that does. It looks good to hear thanks. And then maybe just second for me, I'm the kind of vendor network. Can you talk about the health there and kind of impact given some of the challenges that we're seeing in the market? And then just broadly the ability you have to continue to optimize that network as your business scale. I will tell you, that's a great question. I will tell you that.

I'm pleasantly surprised a little bit. I anticipated, or I usually do I guess, more issues than we've had. The health of our vendor base is very strong. We haven't had any folding up, turn ups in these difficult times. As a matter of fact,

I think we have the right vendors that maybe went to some others that folded up they may have gotten stronger. So we really haven't experienced the kind of issues that you would think and I think some of our competitors may have.

So I'm really thankful for the strength and the commitment of our vendor base. And so our ability to continue to expand that is tied directly to the value that we're bringing to these folks. I think I mentioned in the prepared remarks asset utilization, route optimization. So we're bringing continued strength to our vendor base, I believe.

We're bringing really good clients to them, increasing their volume and giving them a chance to optimize. So with that,

Dave and team have definitely got a strong ability to continue to bring in a strong and competitive vendor. So we've had really good luck and are thankful for the strength of the vendors that we have, Aaron.

Great, thanks for taking the questions I will turn it over. See you then.

The next question comes from Jerry Sweeney with Broad Capital. Please go ahead. Hey, Greg, thanks for taking my call. You made a high jury. I'm going to start with the easier or maybe the easier of my questions. At least the easier one to ask on the RWS, how far to the integration process are you? Maybe specifically in terms of how much of a margin headwind.

remains to be caught up with the rest of the business. Hey Jerry, this is Brett. So we went live in our new integration on August 1st. So we're just now getting through.

some of the hurdles with that and working through the normal challenges that kind of pop up through the integration. So...

Well, we'll get through our first close and continue to iron out the kinks, but I would expect us, you know, by the end of the quarter to certainly be on a normal run rate with the benefits coming from getting on to one single platform.

and continue to iron out the kinks, but I would expect us, you know, by the end of the quarter to certainly be on a normal run rate with the benefits coming from getting on to one single platform.

And you made up some margin impact in Q2, is that correct? Or was that still… Compared to… Yeah. Compared to… Q1, Q1, Q1. We certainly saw some improvement in the business sequentially from Q1, absolutely. Got it. Okay.

My other question, and forgive me, I'm going to try and articulate it well enough. Ray, you talked a little bit about strategy. You hinted at using the board and leveraging their expertise in multiple areas.

We have a lot of clients, when she talked about leveraging increasing service portfolio. I've started this.

sort of write about what's not just being a waste company, but maybe even a repository of data information and the distributor services. I'm just curious if...

Maybe you could open up the kimono a little bit and talk a little bit about you know where this strategy reviews can I go or what maybe you're thinking about since you you have brought it up. So.

I did. I opened the door for the kimono thing, right, Jerry? So yeah, I think I'm more than handed at that. I mean, our board is in grown and bringing a lot of different value. And, in fact, as you know, we've recently added a board member with a significant technology experience and bringing businesses advancing in technology

And the advanced level of technology side is vital to that. Otherwise, we're just picking up stuff and taking it somewhere. There's a lot more to it when it comes to the value that we bring. And again, I think, as I mentioned, as you just said, that's one of the reasons we're able to get a lot of audiences with companies that without that, I doubt we would have been able to.

But the strategic planning process is about expanding where we are today, even in looking at the opportunities, assessing different verticals, really doing a lot of quantification around those, looking at the different technology aspects that we can implement into our business and enhance our value proposition. And I will tell you to this point, it's very exciting.

To me to see what we can do, we don't have limitations that capital asset heavy companies have. We have the ability to now more so than before to enable leverage expertise and technology to make our offerings stronger. So I know I'm being a little I guess generalistic, Jerry, and I need to be, but I want you to understand the direction that strategic planning is taking us.

It's assessing market opportunities and assessing our ability to execute primarily with innovation.

marketing market opportunities and assessing our ability to execute primarily with innovation is what we're looking to be and we're excited about it.

Got it. I'm going to swing the question, or last question, all the way back the other end of the spectrum. Talked about getting some increase in leverage with this new win in terms of some way strings that you maybe didn't have leverage in before. How many, you know?

How many waste streams are out there that you would love to see that you can get more leverage and really go after and just curious as the sort of the opportunity. You know, Jared, we are, and we're talking about it for I think we do like a hundred, over a hundred waste streams. But out of that hundred, there isn't quite a few of those. We have,

relatively little scale just because there's not a lot of it out there with the clients that we have. So I would say probably two-thirds of that we could really...

I don't know, another 20 or 25 vendors that we didn't have in that space, that all of a sudden, with the same commodity or recycled material, we had infinitely larger leverage in geographic coverage. I don't know, that's a tough question to answer, but I probably say at least two-thirds of the waste streams that we have today, we've got significant opportunities to expand scale within those. And that I would assume would be additive to the margin front.

Yeah, totally additive, exactly. Awesome. I appreciate it. I'll jump back on my thanks. Thank you, Jerry. The next question comes from Greg Kit with Pinnacle Fund. Please go ahead. Hi, Ray and Brett. Congratulations on a great quarter. Thank you, Greg. Thank you for having me. On the Q1 earnings call, you talked about double digit percentage growth and growth profit in EBITDA over several years. And I don't think and I heard you talk about it for this year as well. I don't think I'd ever heard you make that statement about gross profit, gross profit growth over several years before will give you the confidence to make that statement for the first time on the Q1 earnings call. Well, I think Greg, it's a great question. It does call for obviously a longer term viewpoint. As I look at the way our business is maturing and what I view as a receptiveness of the market, I'm looking at bringing on new customers, which I feel very confident about, especially with some recent additions. And then,

past investments to improve efficiencies and operating leverage. Can you tell us? You gave us a couple examples of how these investments are practically allowing you to do things differently. Is there anything else that we should think about that's tangible that's allowing you to generate materially more evita up of every gross profit dollar? I'll go ahead and say your head to write down the path. I mean I mentioned a couple I think in the remarks and those are just...

current examples that are out there. There's so many more in the platform that's being developed. There's so much opportunity, Greg, for us to streamline, it's not the right word, but increase the efficiency and reduce the errors, which also increases efficiency and reduce cost in the essence on how we handle emboits. How we source vendors for bits.

you know how we identify getting vendors on board. I mean, these are little things like vendor on boarding and I mentioned that one tool.

You know, think about how cumbersome and how much time and effort and touches it takes to get that done. And when you can automate a process like that, what does it free up for you, right? We've got a lot of talent here that now, then they can be focused on identifying new waste streams and new vendors for those waste streams, which is a very important part of the process.

in terms of enhances our ability to be more additive on gross profit. But beyond that, internally, a bunch of examples I didn't give, but we've got some significant platform investments that have taken place and are moving more toward maturity where we'll see more and more of these things take place in different aspects of our business internally. So it's all about...

It's all about leveraging. It's the same thing this business model we've always interacted about, Greg, you and others, is the ability to leverage costs as we grow. Are you without growing at a faster rate than gross profit? Is exactly how we measure and it was always our expectation.

So $11 million annualized free cash flow which is great. If you delivered another $5 million plus of free cash flow in the back half of the year, should we continue to expect you to pay down debt with that cash? Hey Greg, I'll take that one. So yeah, we'll continue to look and be as aggressive as we can about paying down debt. We of course want to be sensitive to the fact that we expect to grow the business and that's going to require some investment from working capital with the dollar. So we certainly don't want to shortcut or handicap the growth by not buying a...

overpaying down debt. But that said, yes, absolutely. We'll continue to look for those opportunities as much as possible. We've got a great team. We brought in a new Treasury professional that's doing a fantastic job of managing cash and really, and the other pieces, the consolidating of the bank accounts as we get through our integrations.

You've got some loose cash sitting around and different bank accounts that you can start pulling in and have better cash management. All of those things will generate more opportunity to pay down debt, and we'll continue to look at it.

Thank you. It looks like you could comfortably be below three times levered by the end of the year, which I think drives your Monroe interest rate down 1% from its current rate. Is that am I understanding that correctly?

Yes, partially though, we were able to get our leverage under four for this quarter end, so we've already saved a half a point.

coming in, starting into Q3.

That's great. Thanks, Brett. One last question for me. I've known you guys for seven years and we've been invested for four and a half or so. And I think this is the most exciting.

that Quest has ever been for me. You had several competitors get acquired recently, a good multiples, and you're driving incremental gross profit that's contributing to EBITDA at very high levels and converting that EBITDA to cash. And so my perception is that your platform is the best position that's ever been to handle drastic.

Yeah, I'll take that one, Greg. That's, as you know, when you ask that, it's significantly different. Let's go with, say, five years ago, then three years ago, and then now, and there's been a significant about a progress consistently through all those years.

So our platform today, let me just say this, if we had five years ago a platform with the volume we're doing now, we would really be struggling. And our ability to handle it now is going to bring what I would consider best in class service.

to the marketplaces enabled by our existing platform. And the best news about that, Gregor, I firmly believe that it's gonna continue to improve going forward if not at an accelerated rate.

So a lot of my excitement about where we are.

is the improvement in our platform and our ability to drive, to better value to customers, bring on more customers in revenue and drive a higher and higher rate of that to the bottom line as we move forward.

So that's kind of where we are. It's been a drastic improvement. I appreciate your observation of that. Thank you.

kind of where we are. It's been a drastic improvement. I appreciate your observation in that. Thank you. Thank you very much.

Once again, if you have a question, please press star then one.

The next question comes from Nelson Obers with Winfield Capital. Please go ahead.

Yeah, either. I got a couple questions. First of all, you know, I really was concerned about this.

the comparisons in this quarter because of the outlier of Q222, which was really an anomalous EBITDA number that, you know, hopefully you'll start annualizing it that, but it was really out of whack with reality.

So coming in where you did this year is really a very positive development in my opinion.

just uh... couple of you know you've given us a lot of information here that's interesting i want to just quickly explore seasonality because uh... you said that double digit uh... gross profit growth we characterize twenty twenty three and for the first six months you have twenty six versus twenty six

So if you do the math and I won't buy it, take you through it, but it's pretty simple. You wind up with actually doing more gross profit in the second half, 28 million. That's based on 10% increase in gross profit versus what you did last year for the whole year, which was 48 million.

Gross profit growth will be enough to overcome that seasonality on a yearly basis if you're going to grow gross profits by 10% in 2023 versus 2022. Do you follow that?

Yeah, absolutely. That's very similar math to what we did to get comfortable with the statement. Yes, we're very confident.

That's very good because seasonality would normally create a second half that would be weaker. You've also done something which I give you high credit for, you'll probably never do it again, but you put the cue out in advance of the conference call. And there's a paragraph in the cue that's...

full of interesting little breadcrumbs under the MD&A where you talk about, I'll just read it real quick for everybody, the decrease for the quarter was primarily due to an approximately 3 million decrease in recyclable material revenues and also due to an approximately 5 million over 100 celling used by thGod's will, enabling a combination of millionaires with free-for-all maintenance for homes, 24-hour homeowner insurance bills or agents according to presents

decrease in revenues from a certain 2021 acquisition. These declines were offset by an overall strong increase in demand for non-recyclable material services from both new and continuing customers, resulting in almost $6 million in additional revenues. Would you go over what those non-recyclable materials are?

recyclable material services stack up and look like? I mean, just in August , we start you.

Yeah, it's just, it's just our revenue.

Yeah, really what we were trying to talk to is the organic growth in the business. So take away the value changes year over year with recyclable materials. We talked about those commodity values and how they can fluctuate.

And this year was no different, but really highlighting with those numbers the 8% organic growth year over year really was something we wanted to highlight because it's an important story about our, to your point earlier, how are we gonna get to the double digit growth year over year?

got it okay so that's that part and the this five million decrease in revenues from the acquisition uh... in 2021 is some of that uh... you know can we can we get some of that back or do you have any comment about that

No, you know, as we've talked, especially going...

standpoint of Returning to normal, you know, we feel very confident that wasn't a result of any Of any lost customer significant lost customers or anything like that just Speaks to the challenges that we had last year You've had it clear you've learned a lot about How to handle acquisitions and integration and you're you know, you're the new sheriff in town, so You know that's that's good to know and and finally and I know this is really you know back of the envelope, but you know

Think Greg mentioned your 3x leverage now, and you're we're paying about it'll go down But we're still if we annualized we're still paying 10 million in interest expense on Less than 60 million of debt now. I know it's tough out there But at what point?

When you think about it, I mean that would be like a mid-teen interest rate. Is reflying something that you think about and is there a point where you could find a more traditional lender that...

You know, I could imagine a situation where you get your debt down to say 50 million and you'd pay 10% and bingo, we have 5 million more free cash flow. Just your thoughts about that.

So just to clarify for Greg, if I understood him correctly, he was talking about his modeling had to sit a 3X leverage point or below by the end of the year. So our match.

I mean you can do 20 million of EBITDA. I mean that's within reach. I mean if you annualize Q2.

No, yeah, I just wanted to clarify. But absolutely, you know, refinancing is something we're looking at. I think we've talked about that. We've got some opportunities. We're talking to some really good banks out there, to your point, some traditional type of lenders that we do think we could see some savings.

can what it can do for us going forward.

The exciting thing about this story in my opinion is that you should be able to find a lender who will allow you to invest in growth platforms while charging you a less confiscatory interest rate. And I really think that's something that could seriously unlock value, maybe not immediately, but I'm glad you're thinking about it.

That's all. Absolutely. Bye.

Thank you, Nelson.

This concludes the question and answer session. I would like to turn the conference back over to Ray Hat for any closing remarks. Please go ahead.

Thank you, operator, and thank you all that are on the call, and I appreciate the

I really appreciate the interest in Quest. Many of you have been there for a long time and show a lot of confidence in our team, and we appreciate it greatly. I want to reiterate our positive outlook for 2023. I hope we expressed it clearly. If not, I'll do it again. We feel really great about a confluence of events. Everything's, we think, moving in the right direction.

and I'm constantly humbled by their dedication and hard work, all these shareholders as well. We look forward to keeping you up to date, quarters to come, great quest story, we'll continue to write better chapters every quarter as we go by. So thank you everyone, appreciate it.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.