Q3 2023 Quest Resource Holding Corp Earnings Call
[music].
Thank you for setting by this is the conference operator welcome to the Quest resource holding Corp, third quarter 2023 earnings Conference call.
Speaker 1: Thank you for standing by. This is the conference operator. Welcome to the Quest Resource Holding Corp third quarter 2023 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
Speaker 1: As a reminder, all participants are in listen-only mode and the conference is being recorded.
Speaker 1: After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad.
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Speaker 1: Should you need assistance during the conference call, you may signal an operator by pressing star then zero.
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Speaker 1: I would now like to turn the conference over to Dave Mossberg, Industrial Relations Representative. Please go ahead.
I would now like to turn the call. Please.
Mossberg Investor Relations representative please go ahead.
Thank you Jay Lee this is.
Speaker 2: This is Dave Mossberg, your lines cutting out a little bit, so I'm going to go ahead and get started. Maybe you'll let me know if we can't hear if you can't hear us.
This is Dave Mark for your line is cutting out a little bit so I'm going to go ahead and get started if you'll let me know if we can hear you can't hear us.
Well, thank everyone for joining the call before we begin I'd like to remind everyone that this conference call may contain predictions estimates and other forward looking statements.
Speaker 2: I want to thank everyone for joining the call. Before we begin, I'd like to remind everyone that this conference call may contain predictions, estimates, and other forward-looking statements.
Speaker 2: Regarding future events or future performance of quests, use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those 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.
Speaker 2: Such forward-looking statements are based on Quest's current expectations, estimates, projections, beliefs, and assumptions and involve significant risks and uncertainty.
Such forward looking statements are based on quests current expectations estimates projections beliefs, and assumptions and involve significant risks and uncertainties.
Speaker 2: Actual events or quest results could differ materially from those discussed in the forward-looking statements as a result of various factors, which are discussed in greater detail in quest filings with the Securities and Exchange Commission.
Actual events or quest results could differ materially from those discussed in the forward looking statements as a result of various factors, which are discussed in greater detail.
<unk> filings with the Securities and Exchange Commission.
Speaker 2: You are cautioned not to place undue reliance on such statements and to consult RSEC filings for additional risks and uncertainty.
You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties of course forward looking statements are presented as of the date made and we disclaim any duty 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 statistics.
Speaker 2: Quest forward-looking statements are presented as of the date made, and we disclaim any duty 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 development.
All information.
As well as quests observations and views about industry conditions and developments.
The data and information are based on Quest estimates independent publications government publications and reports for market research firms and other resources.
Speaker 2: Although Quest believes these sources are reliable and the data and other information are accurate, be cautioned that Quest has not independently verified the reliability of the sources or their accuracy of the information.
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.
Speaker 2: 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 company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding of the assessment of the company's ongoing core operations and prospects for the future.
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 company's current performance management believes the presentation of these non-GAAP financial measures is useful to investors' understanding of the assessment of the company's ongoing core operations and prospects for the future.
Sure.
Speaker 2: Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliation 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.
Unless it is otherwise stated it should be assumed that any financials discussed in this call will be on a non-GAAP basis full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release with all that said I will now turn the call over to Ray Hatch, President and Chief Executive Officer.
Yes.
Speaker 2: Thank you, Dave, and thanks, everyone, for your interest in Quest. I want to start off by emphasizing how excited I am about what lies ahead for Quest in the next several years.
Thank you, Dave and thanks, everyone for your interest in Quest I wanted to start off by emphasizing how excited I am about what lies ahead for quest in the next several years.
Speaker 2: We've made significant strides in laying the foundation for growth and earnings. This year we've made a lot of positive progress building our growth engine and investing in technology to drive efficiencies to support that growth.
Made significant strides in laying the foundation for growth in earnings.
This year, we've made a lot of positive progress building, our growth engine and investing in technology to drive efficiencies to support that growth.
In recent months, we've seen a noticeable uptick at the number and the size of opportunities in our pipeline.
Speaker 3: In recent months, we've seen a noticeable uptick at the number and the size of opportunities in our pipeline, and we've seen faster than anticipated ramp up at one of our largest new customers. We also have a.
Being faster than anticipated ramp up at one of our largest new customers.
We also have a robust outlook for growth.
Speaker 3: In addition, at the end of the third quarter, we completed the systems integration of RWS.
In addition at the end of the third quarter, we completed the systems integration of RW, Yes, we uncovered isolated issues related to our Ws lab legacy systems, which resulted in cost of sales adjustments.
Speaker 3: We uncovered isolated issues related to RWS legacy systems, which resulted in cost of sales adjustments, mostly related to the activity prior to 2023.
Mostly related to the activity prior to 2023.
Speaker 3: This is the primary cause of gross profit dollars from RWS being approximately $800,000 below our expectations during the third quarter. While RWS systems integration
This was the primary cause of gross profit dollars from <unk> being approximately 800000 below our expectations during the third quarter.
While our Ws systems integration has been frustrating.
Speaker 3: It is complete, and we've taken action to realize approximately $1.7 million in annualized SG&A cost savings beginning in the fourth quarter of this year.
It is complete and we've taken action to realize approximately $1 7 million.
Annualized SG&A cost savings beginning in the fourth quarter of this year.
Speaker 3: In addition, we're bringing online several technology enhancements to our platform. We expect these enhancements to improve efficiency, scalability, and continuously improve our client value proposition.
In addition, we're bringing online several technology enhancements to our platform. We expect these enhancements to improve efficiency scalability and continuously improve our client value proposition.
Speaker 3: In summary, I am more excited than ever with the underlying strength and the foundation of our business.
In summary, I am more excited than ever with the underlying strength of the foundation of our business.
Speaker 3: I'm looking forward to realizing the resulting bottom line improvements from our investments in the platform. I'll now turn the call over to our CFO , Brett Johnson, for financial overview. I'll be back soon to discuss progress on our strategy.
Looking forward to realizing the resulting bottom line improvements from our investments in the platform.
I'll now turn the call over to our CFO, Brett Jos Centrify financial overview I'll back soon be back soon to discuss progress on our strategies.
Thanks, Ray and good afternoon, everyone. A quick note about the sequential decrease in revenue.
Speaker 3: Thanks, Ray, and good afternoon, everyone. A quick note about the sequential decrease in revenue.
It was primarily related to commodity price fluctuations and normal quarterly volume fluctuations.
As discussed on previous calls commodity price fluctuations have not historically had material effects on gross profit dollars.
Our customer agreements produced consistent gross profit dollars based on volumes that are not tied to commodity price fluctuations.
For those of you new to the story. This is the reason we use gross profit dollars is a key metric to measure financial performance.
During the third quarter gross profit dollars were $12 4 million, an increase of 2% versus the third quarter last year, and a $1 1 million sequential decrease from second quarter.
The sequential decrease primarily reflected 800000 from the underperformance of art of U S to a lesser extent sequential comparisons were affected by the decreased contribution from an <unk> client that had been acquired by another company.
That company that acquired this our ws client managers waste disposal internally and decided to manage the <unk> clients. Similarly.
As part of the process of fully integrating our <unk> onto our platform. We have gained efficiencies and have been able to reduce head count and cut operating costs at our wf we.
<unk> approximately $1 7 million in annualized cost savings beginning in the fourth quarter of this year.
Sequential comparisons doing during the third quarter were also affected by a billing adjustment of approximately four 400000 from our quickly ramping new customer.
While it did affect third quarter results. It represents a very small percentage of this client's total billings and we maintain a strong relationship with this client and.
In fact, excluding this adjustment the contribution from this client grew during the third quarter and continues to ramp in the fourth.
Looking to the fourth quarter, we expect gross profit dollars to increase sequentially from third quarter and expect our performance to be more in line with our performance in the second quarter, we expect our growth in the quarter will ramp and will mostly offset typical fourth quarter seasonality.
In addition, we will benefit from the cost cutting at our Ws and overall efficiency gains beginning in the fourth quarter.
Moving on to SG&A expenses, which were one point, which were $9 6 million during the third quarter compared to $9 3 million. During the same period last year and in line with our expectations looking forward, we expect lower integration costs and we expect to gain efficiencies from the investments we have made in our <unk>.
Platform.
We plan to continue to reinvest these savings into growth initiatives that further improve efficiencies and increase our ability to bring value to our clients.
As a result, we expect SG&A expenses will be about $9 5 million in the fourth quarter.
Going forward, we expect to begin to see the steady benefits of both cost reductions at our Ws and investments in technology and process improvements, which will lower our cost and improve ongoing operating efficiencies as gross profit dollars increase we expect operating expenses to grow.
ROE at a slower pace as we deliver improving operating leverage in the quarters to come.
During the third quarter, depreciation and amortization was $2 3 million, which was relatively flat with the prior year.
Moving on to a review of the cash flow and balance sheet.
We are in good shape liquidity wise and continue to enhance our liquidity.
And this high rent high interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management.
Carrying less cash and minimizing our borrowings on our line of credit.
Our cash balance was 870000 at the end of this quarter and we have a five point and we have $5 $4 million drawn on our $25 million operating borrowing line.
This compares to $12 2 million at the beginning of the year, we will continue to evaluate our overall leverage and ways to reduce our overall interest expense.
Year to date, we produced $6 6 million in operating cash flow and third quarter marked our fourth straight quarter of positive operating cash flow.
At the end of the quarter, we had $56 8 million in notes payable versus $70 6 million at the beginning of the year.
To summarize this represents a $14 million reduction in long term debt year to date, which included $7 million of voluntary term loan prepayments.
The balance of the reduction reflects normal principle payments and at a lower borrowing on our asset base line with PNC.
Our cash management efforts and the reduction in borrowings, we expect to reduce interest expense by more than $1 million on an annualized basis.
At this time I'll turn the call back to Ray.
Yes.
Thank you Brad.
While the cleanup such estimates Friday, IVF had been frustrating and have made our quarterly comparisons challenging.
I wanted to emphasize the conviction on our trajectory and the overall outlook for the company.
We've made tremendous progress during the last several years and are as confident as ever about our outlook for continued double digit growth over the next several years.
We are now running all of our business on a common platform.
So our integration efforts and other actions, we've been able to lower head count and can now begin to realize greater efficiencies from these acquired operations.
As I said earlier, we will recognize approximately $1 7 million in annualized savings from our Ws.
In the fourth quarter. In addition, we expect to continue to lower overall operating costs and drive efficiencies across the operating platform.
Let me make a brief comment about the macro environment and concerns over inflation and economic uncertainty.
During the third quarter, we continued to see stable activity across our end markets, we manage cost pressures and fluctuation in the price of mid cycle materials as well.
The waste business is generally resistant to recessions and our clients continue to generate waste during the top and the bottom of the cycle.
We also have compelling and differentiated value propositions, which creates strong client relationships.
That endure during periods of economic weakness.
Through our value add we strive to have a long term strategic relationships for their customers and not have relationships that are transactional in nature.
To illustrate that point, we recently reviewed the longevity of our top 20 clients and noticed the averaging gave us requests with over nine years.
We also recently signed a new five year extension and expansion agreement with one of our largest and longest standing clients.
While our core business is strong the one area, where economic uncertainty that's been affecting us.
It has been the pace of adding new business, which is slower than we would have liked over this past year.
While a portion of our new clients on the Onboarding ramp has been slower than expected.
Certain clients waste disposal is managed at a local level and several of those cases has taken longer than we expected to rollout our programs.
Our proved five and being driven by the corporate level. We also have several large opportunities that are taking longer than expected to get signed anecdotally. These clients and prospects are telling us they believe strongly in our programs.
Some cases other parties as simply pushed back implementations.
We don't have prospects falling out they're just not moving as quickly as we anticipated.
I would also note that this is not the case across the board and we're winning new business and we're still seeing growth from existing clients.
Moving on to a discussion of our growth.
I feel very good about the organic growth we have in front of US we have multiple sources of growth that give us confidence in our ability to post double digit gains in gross profit over the next several years.
We expect growth to come from Onboarding activities of recent wins in some cases it can take 12 to 18 months to fully ramp clients and there are several new clients that are still in the process of ramping which will provide embedded growth for at least the next year, while the pace of Onboarding has been slower than we would like with some clients. We have others that are accelerating that.
Appointment of our programs.
As we discussed last quarter, we began on boarding a new client during September at a small portion of their 380 locations.
In a short period of time. This client has validated our value proposition and is now asking you rollout services to all of their locations faster than we had originally expected.
In addition, we're being asked to handle a broader line of services than we had previously planned.
With the acceleration of the rollout we expect this could turn into an eight figure revenue contributor closer to the end or to the shorter end of our 12 to 18 month timeframe.
I would reiterate that this is a new end market vertical for US there are a few large potential clients in this end market.
And we are pursuing peers in this space.
The services, we provide for this client will have some overlap with our capabilities to an existing waste streams, but also give us a scale.
Required to add capabilities for new waste streams, and we will in turn introduce other new clients.
Regarding new business during the quarter, we had a win in the new automotive new automotive service client with a rapidly growing base of 50 locations. We expect this client to generate seven figures revenue at maturity.
In addition, during the third quarter, we had significant wins with existing clients in the retail automotive and restaurant end markets, our land and expand strategy has consistently delivered solid growth from our existing client base for the last five years and we feel there's ample opportunities for continued growth from our existing clients for multiple years to come.
<unk>.
We're making new investments in our sales force, which should also provide a driver for growth.
On our last call, we spoke about adding a proven new sales. Later. In addition, we're adding investments in sales operations that will allow our sales folks to spend more time on clothing and less time on more administrative functions such as proposals and lead generation.
In addition, we're looking to shorten the sales cycle by simplifying our contracts and using our new sourcing tool the turnaround proposals much more quickly.
Our new sourcing tool allows our staff to look across the entire footprint of vendors for qualification and pricing data. This tool reduces the time, our staff need to find the optimal solution for from days to minutes.
These investments in sales to help us grow our pipeline shorten the sales cycle and create a better yield in converting proposals into agreements going forward.
Another source of growth will come from our growing pipeline of opportunities.
As we said in the release in recent months, we've seen another small uptick in the number and the size of the opportunities in our pipeline.
There are several factors that are likely driving the improvement there.
A big the biggest reason is related to have in reference of all clients that can attest to our strong value proposition as.
As we've demonstrated our value we have success been successfully successful in adding new clients and extend much easier to open a discussion with potential clients are hedged.
It would take to estimate when or if these deals may close, but I can say very several very large opportunities have progressed to the final stages of approval and I'm confident we'll be able to add several new clients in the coming quarters.
I also want to reiterate that we have a large opportunity to drive gross profit dollar growth and on the cost side by optimizing the business we have in hand over.
Over the last three years, we've more than doubled the size of our business.
But about two thirds of that growth coming from acquisitions and new clients.
As we bring revenue onto our platform, we have proven our ability to optimize the cost of services through vendor relations and procurement management that drives our continued growth in gross profit dollars.
Before I move to our outlook I wanted to talk a little bit about the investment we're making in technology.
Over the years, we've built a technology platform that will be able to scale to the size of a much larger enterprise technology platform. We've built has been the key in deciding factor a key deciding factor for several comparative lens competitive lens and helped us maintain enduring client relationships due to the incremental value we provide in <unk>.
Eight years, we stepped up investments in our technology platform. So we can stay ahead and continuously improve client value efficiency and.
And scalability.
We intend to introduce a new technology improvements during the first half of next year. These improvements will enable us to further automate and lower cost of process process invoices and provide a major enhancement to our ability to scale for.
For example, this will allow us to further automate the processing of vendor invoices and achieved significant cost savings and margin improvements.
Based on the progress regarding our outlook based on the progress we've made.
I am extremely encouraged for the underlying strength of our business and the ability to generate profitable growth.
We expect to end the year strong with sequential improvement in both gross profit dollars and EBITDA, we expect to be a strong cash flow generator in the year of 2023.
We have multiple sources organic growth.
We will continue to drive operating efficiencies and to invest in capabilities.
Pressure to improve sustainability, increasing regulation and increasing cost of land sales continue to lower the bar for adoption of our recycling services.
Have a tremendous wide space of opportunity and we're very optimistic that we will continue with positive momentum over the next several years I.
I look forward to keeping you updated on our progress we'd like now for the operator provide instructions on how listeners can queue up for questions operator.
Thank you we will now begin the question answer session to join the question queue. You May Press Star then one on your telephone keypad.
Your tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing a little cool right.
Your question. Please press Star then two.
Our first question is from Aaron <unk> with Craig Hallum. Please go ahead.
Yeah, Good afternoon, Ray and Brett Thanks for taking the questions.
Hi, maybe.
Maybe you.
Maybe first for me you kind of touched on it a little bit, but just with the uptake in kind of number and size of deals in the pipeline.
It sounds like it's pretty broad based but can you just talk about some of the drivers behind that and any areas or end markets in particular.
Actually there are several end market Sharon thanks for your question.
Industrial continues to be a real opportunity for us and there is some opportunities in retail as well I think I mentioned in the remarks referenced have all clients has helped us quite a bit but also.
We've had a lot of work going on in prospecting is starting to come to fruition. So the focus that our leadership team on the sales side has I'm, putting a lot of great new prospects on the top is starting to prove out and we're excited about that.
Alright, good thanks for that and then maybe just on the food waste in program mix.
Seen numerous states start to implement kind of reduction goals on the food side and penalties start in kind of early in 2024 can you just give us an update there on on where conversation stand with customers and how you see this business contributing to Gulf growth going forward.
Yeah, sure and you're absolutely right Aaron food waste is continues to be an area of focus and it continues to be probably the.
The biggest opportunity our target for diversion from landfills.
We have some great customers in that space today, and we have some tremendous prospects that we're talking to as well.
And to be honest with you a.
A lot of in many cases grocers are really starting to look at.
Opportunities to do more diverse than they did in the past based on those pressures that you're just referencing areas. So I encourage more and more regulation and pressures it speeds up the sales process and we're encouraged by that.
Alright, thanks for taking the questions. So I'll turn it over.
Thanks Sharon.
The next question is from Gerry Sweeney with Roth Capital. Please go ahead.
Hey, Brett Thanks for taking my call.
Hey, Jerry.
Going back to the U S and then I think the.
100000.
Charge for the ramp up.
Two different two different issues, but maybe looking at root cause is there any concern about processes systems et cetera.
You have to take a look at to make sure this doesn't happen again or.
How can we look at it.
The mitigation strategies around much.
Hey, this is Brad I'll take that question, starting with our Ws.
I wouldn't call. These.
Broad based they were really isolated to two specific issues that were difficult to identify we've done a lot to work on our visibility within our ws before we brought them into our current environment, but.
But we still had a few gaps there.
These popped up as we went live in the new systems and.
So we feel confident with the processes we have in place.
Being in our environment manage through our accounting teams and our operational teams that we've got much better visibility and consistency as we look at more of the recent numbers as we've gone live and then to your other question on the quickly ramping customer. It's again, it's a fairly large customer it's really a very small.
Percentage overall.
Not not systems related.
Not really a process that was just an error that was made.
And it was over a longer period of time that it was missed and we had a true up and these things happen, sometimes and I don't want to diminish it we're working on.
We don't want any but but we certainly don't see any.
Broader base concerns on these types of things.
Got it was the <unk> in <unk>.
The issue in the third quarter or was that a lingering issue for me over time over the last couple of quarters as you would've integrated it yes. It was known as you probably know it was a lingering.
Sorry, it was a lingering issue.
We've stated most most of it was related activities prior to 2023.
So I'm kind of sitting in there and and even most of that was noncash.
Got it got it.
And then on the sales cycle. It seems like some areas taking long I'm just curious if there's any industries that are moving maybe the ramp up is going faster than you anticipated and some are slower.
In particular, maybe if you have a lot of us wrestling softball accounts in one industry is that sales cycle sort of.
Faster than an industry, where you have less.
Principal.
Well, yes referenced Apple customer references customers definitely helps speed up the process Gerry how theres no question, Yeah, it's almost like.
Our due diligence it doesn't have to be performed.
By the prospect, So I don't think Theres, a industry specific delay or improvement at our end market specific I mean, I think it depends on where the where the prospect is in their decision cycle and how they do it some of them are more complex than others. Some of them have a ridiculously long frankly sign off process.
That goes through numerous departments. Some of them are much more quick quicker than that but I guess, what I'm, saying is I don't see that as end market specific its more company culture specific.
And how quickly they make decisions.
And some very large companies sometimes opportunities for finding when they come up.
Over the course of one year or cycles also part of it is just yet.
Okay.
So companies manage the <unk>.
Mhm services, but also a way of looking at it.
If your question was larger companies Jerry what are they take longer is that what youre, saying how couldn't hear you very clearly essentially yes, yes, yes.
Okay Yeah.
Got it.
It goes back to complexity right the larger the company into more locations and more waste streams typically.
The more well bureaucracy I guess that exists. So there is a there is a pattern based on the size of the companies.
Larger companies take longer no question.
Yes.
Final question, and then I'll jump back in queue any.
Competition popping up obviously I mean, you mentioned one client that went away, but that was internalized rate.
Understandable, but just curious if youre seeing any competition even on the fringes are stocking out there on that on that landscape.
We talk about that quite a bit Cherry and now as you mentioned just and I appreciate you reiterating that.
That lost client, we talked about was strictly they were acquired by somebody else.
They took it internally so it didn't have anything with us.
And I should mention I guess that we have situations, where our clients are buying other companies and we get growth out of it too so it happens both ways, but.
But competitively I haven't seen a lot of changes you know I've been watching to see as our price points going down you know aggressiveness that type of thing.
Economic conditions changing and.
I really don't I, we really haven't seen anything to that effect, it's a very competitive industry as you know.
I think it's pretty much stayed the same I haven't seen a lot of changes.
Got it.
The outflow.
I'll jump back in line.
The next question I'm, sorry, it was that quick.
Yes.
I believe he said he would jump back on the net.
<unk> Joshi with H C. Wainwright. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions.
Sure.
U S. It seems.
The revenue loss also bleed into.
This quarter it seems.
$6 million.
Yeah.
Yeah.
Our growth here.
Is there any reason for lost revenue or.
Can you just shed some light on that.
Yes, I'll take a little bit of that so.
We've certainly we've got the <unk>.
Commodities that run through that business as well so.
I would say a portion of that is certainly related to <unk>.
Reductions in just overall commodity values, we did talk about the loss cost from her so we got a portion of that in the quarter as well and then.
The rest is probably probably related to.
Some of the adjustments that were made throughout last year as well.
Okay.
Some of my other questions have been answered, but just checking on.
On the last call you mentioned double digit growth in gross profit and <unk>.
Don Motors and an adjusted EBITDA for 2023 or are we still on track for that.
Yeah.
If you if you take out the <unk>.
Exceptions that I think Brad did a really good job of laying out I mean were there.
Yeah.
But we're looking at it we're looking to continue that the outlook is strong going forward.
Definitely strong going forward in future quarters.
No.
And then the last one.
Was there any further principal payments made to <unk> I think in the last quarter around 2 million loan was repaid.
No we did not make.
Another one subsequent to this quarter, we did talk at the end are in our Q2 earnings call that we have made one subsequent so we did have a payment.
$2 million within the quarter, but we talked about that one as being a subsequent transaction to Q2.
Understood Thanks for that information.
Thanks for taking my questions.
Thanks Amir.
The next question is from Greg Kit with Pinnacle Fund. Please go ahead.
Hi, Ray and Brett how are you.
Great how are you Greg.
Good.
Wanted to ask a question about brad's commentary it sounds if I got what Brett said it correct I think Brent said he expect sequential gross profit increase in the fourth quarter and you expect something similar to Q2, and so Q2 gross profit was 13 and a half.
Is the right way to interpret.
That statement that you think Q4 is around 13 and a half.
I think thats kind of our baseline for just overall performance of the business Greg.
We've talked about we've got some opportunities in some some growth coming in as well.
In Q4 of last year, we talked about some cyclicality or some seasonality that came in that can really vary customer by customer. So there's a we don't have full visibility on how thats going to impact.
Q4, but just in terms of strength of the business. We certainly look at Q2 as being much more reflective.
Of the continued continued sequential performance.
And you can get there basically with with the adjustments we talked about gets gives us really closely in line with with Q2.
Thank you.
I wanted to make sure that I understood.
How much of the.
How much the adjustment was to gross profit in the quarter I think that you highlighted 500000 of our W. S.
Gross profit impact and then was the 400000.
Dollar intact with the one.
The cash growing customer was that also a gross profit impacts in 2009.
$100000 reduction in gross profit or was it.
More.
No. That's yes, that's correct, it's about a 900000.
Adjustment to gross profit that we took in Q3.
Okay great.
So.
So then.
Yeah, getting close to double digit gross profit growth for the year. If you add back 900000, and do around 13 and a half of.
Gross profit for the fourth quarter on done maybe a little less this year.
Is is kind of how that looks to me and so I, but I do hear you talking about your confidence in getting double digit growth.
Going forward and you talked about.
Some of it is just a lot of different areas in which you can attain it and so I would appreciate if you can help us understand how much of that do you think is coming from.
Your existing customers like wins that are already in hand, how much of it.
It is coming from.
Jill optimization, which you touched on and then how much is there like a go get where you need to go get a $1 million of gross profit to get to 10% or do you think that it's kind of already in hand.
I would say, yes, that's a tough one to quantify Greg obviously theres a go get factor in there, which is always hard to put your finger on but I will say first of all that optimization that you talked about the profit optimization is with existing clients. So and thats been an ongoing thing that Dave's team has done a fantastic job by lowering cost.
<unk> cost and lowering costs and increasing the gross profit for a long time.
And Thats still a big contributor to us, but there's a there's a portion of that go get I would go ahead and say.
I think more than half that as it is is an existing client opportunity.
The go get steps took a lot stronger than it has been in the past.
The conference call is pretty high, but we've got a big head start with existing clients, Greg and we've already got mapped out a lot of those things that draw that increase in gross profit, it's calendar and mapped out already an existing client. So we feel good about that.
Thank you and on the $1 $7 million SG&A cost savings.
Or ws you talked about seeing some of that in the fourth quarter.
But I think I also heard you say that SG&A should be around $95 million.
How much of that and Thats kind of in line with your prior commentary how much cost savings from the <unk>.
$1 7 million a year, which is like 425000, a quarter how much do you think can fall into Q4 versus you start in Q4, and you'll see it in future quarters.
Yes, most of it should be in in Q4, we will get a little bit of additional pick up after Q4, but most all of it will be in place. We've got a couple of other.
SG&A lines that are coming in and offsetting a bit of that but overall, we expect the full amount to be realized.
Or.
Okay, and so $1 $7 million annualized like 425000, so you've put this cost savings plan into place very early like in the September time period is like September or so.
First first couple weeks of September if you think youre going to get most of it in the fourth quarter is that fair.
Yes, it kind of had a rolling aspect to it. So this wasn't a 111 time thing.
But yeah, we saw.
Certainly by the end of the Q3 at most most of the savings already realized.
So it is important to note that this isn't a wanted to this is already done.
And we were given the annualized number.
Execution of the of that.
Initiative is already completed.
Okay. Okay, great. Thank you and then on the.
New customer that I think you said was going to start ramping September 1st that sounded like that was going great.
Yeah.
Total number of locations 380 locations or is that just.
The size of the initial opportunity.
Hey, Hugh.
Now that's the number of locations this size of the initial opportunity is.
All of our locations are different sizes, you know some of our smaller small large it's.
That's not uniform so the number of locations is less important than the.
The waste generated in the amount of it so it starts out with the with one part of it and we're adding waste streams as we go along and we're also adding new locations.
I'm really proud of the team.
We have here, that's convinced them that they need to accelerate and move forward with additional waste change locations as opposed to phasing in over the longer period of time.
We were thinking it was going to be frankly, there's still a phased in aspect Greg but until.
Feel pretty confident to accelerated from what we thought it was initially.
That's awesome.
Is there a way to think about the opportunity with some of those competitors, which it sounds like you think.
You're also pursuing are any of those in that bucket I think you quantified raise something like far along.
In the process and are maybe at the closing stages something I don't remember the exact way you described it but is there a way to think about how some of those other competitors are in the pipeline where they are.
You mean are we getting those prospects from other competitors it sounds like Youre asking Greg.
Yes, yes, sorry, if I said it poorly I think that you have been.
Reticent to give a lot of detail about that specific company as new customer. They are because there are other competitors.
In their ethane market.
They are going to try to win as customers and so I think that you are my takeaway has been that you're pursuing those customers.
Are any of those kind of in that later stage.
In your prepared remarks, you talked about some of your customers being.
Junkie in later in the pipeline are any of those.
Competitive players to this new mystery customer are they further in the pipeline or how would you characterize where they are in the pipeline sorry, I rambled hopefully that was clear.
I understand your question Gregg I think you can understand that I continue to be radisson.
Competitive reasons to speak to that much detail.
But yes, there's a lot of opportunities that are created by other competitors frankly that arent taking care of their clients as well as we think we can.
I'm, probably not going to mention anything specific relative to it I think you understand that.
Yes, and my last one and sorry all.
Hop offerings cede the floor is.
Have you explored I think on the last quarter call you talked about exploring.
Exploring opportunities to maybe refinance your debt I can't I believe you said that but I could be wrong and I would love to hear brents remarks sounded like you guys are focused on reducing your interest expense by managing your cash.
And you've done a good job of that this year and by reducing.
Principal on your debt and I would love to hear how you think about your refinancing plans.
Okay.
Hey, Greg the spread again I'll take that.
We did talk in Q2 that we were having conversations and we continue to have conversations.
And and continue to be excited about the opportunities that we have for refinancing we're taking a really slow deliberate approach to it because we've got a lot of exciting growth opportunities. We've talked about during the call and we want to make sure that whatever we set up is in place to really help support that growth over.
The longer term. So we are taking a little bit more time, and it's certainly not because we don't have really good options. We continue to be really excited about potential partners that we've got out there.
But just going to take a little bit bit more diligent time in.
Making sure we get the right.
Staying in place.
Thank you very much.
Yeah. Thank you.
Yes.
The next question is from Greg <unk> with N K H management. Please go ahead.
Yeah.
Okay.
Hi, guys.
Hi, George.
And then maybe a more sort of detail question on the Rod question, Greg you talked about doubling over the last.
Two years and about a third of that is coming from existing customers.
We do some very simple math.
Suggest that you showed a growing with your existing base.
10% per year.
It seems a little high to me and our one Gary.
It's about how.
The number of smaller labs.
In terms of organic growth.
George.
I'm going to answer your question that that I believe I heard it. Unfortunately, the connection is not great, but I think your question was around the doubling of our business and one third okay.
It came from existing clients in essence, yes.
And the fact that you did the math and it sounds like 10% is a little high is that what you're thinking that what youre asking George.
Are you asking.
Yes.
Thank you Doug.
And is that going going forward.
Yeah. It does it does seem high that its actually what this team has been doing.
And thats growth in gross profit dollars not revenue necessarily.
And so we talked about the procurement initiatives about continuing to leverage and optimize the waste services and create more value from the commodities.
That team has been doing that so they've been doing that for many years. So yes, George those numbers are accurate and were really thankful to have those long term relationships with these great clients and we were able to do that.
So as you go as you look forward in 'twenty, four and 'twenty five.
<unk> mentioned the platform that you're making.
Is that still what you expect in terms of gross profit dollars, Georgia will regain growth.
Are you sort of targeting 10% or how.
How do you think about it.
We're targeting 10% overall.
Growth and plus 10% plus.
But we expect pretty consistent contribution from the existing clients.
The improvement in the platform it is going to do a number of things for us.
It's probably going to end it is going to impact SG&A quite a bit.
Because of the automation type of elements of it and those types of things so not necessarily as much of a gross profit.
Type of indicator, but there are some gross profit pieces there to like we mentioned the procurement tool the guys are able to use.
And identify better pricing in better locations in a short period of time, but I would look for the well I guess I'll ask a question with two two answers one.
We have no reason to expect that contribution growth from existing clients to really change over the pattern has had several years and to the technology platform.
Is it going to be really beneficial in a lot of ways, but a lot of it is kind of come from scalability and leverage internally on our operating costs.
Okay.
Okay, Great and then maybe one question for Ben.
Working capital days, I guess, the way I calculate them.
Pretty consistent there in 'twenty three it's quite a big bet in 'twenty two.
And thank.
Thank you.
So you have a target in terms of bookings.
These working capital dollars.
Yeah, we continue to.
Focus on that as an opportunity we are it was up a little bit in the quarter compared to last quarter, we have.
With some timing issues related to we had some projects come on line.
Right.
So we haven't had a chance to collect those cars because they happened later in the quarter and then a little bit of delayed billings on the our Ws piece as we transitioned the billing under our new system again, nothing nothing real concerning there, but yeah. We continue to look for opportunities. It's tough on a target you know the one thing that's cautionary.
As we are.
Working with very large customers, who are trying to manage their working capital as well and especially at our coming in to the end of the year.
They tend to hold payments as well so.
But it's certainly a focus and we think there are some opportunities to get to get better there as well.
Okay, great. Okay. Thanks for that.
Thank you George.
This concludes our question and answer session I'd like to turn the conference back over to Ray hatch for any closing remarks.
Thank you operator, I just wanted to take this opportunity guys.
I want to reiterate our positive outlook I want to make sure that I came across as I intended that are very very confident.
When you look at our business today and look forward I don't think I've ever felt better about where we're headed I mean, there's so many positive things in the fourth.
So I'm very very encouraged by that I want to I want to thank you again for all your interest in quest I'm really appreciative of our shareholders.
Support that we get from you guys.
And I want to thank the rest of the quest team I never want to forget this for the ongoing efforts to deliver value to the client and to the shareholders.
Putting a lot of time and effort and work and it shows in the client retention client relationships client contract re signings those types of things. They don't happen if youre not doing a good job and these guys are doing a great job I'm very appreciative of that.
We have a number of key initiatives that we're working on and we've really started ramping them up as we move into Q4.
And I'm really excited about what they're going to do they're going to be enhancements to our platform enhancements to our ability to grow revenue and to grow gross profit, which should yield a greater EBITDA going forward. So that's kind of where we are.
<unk> excited about it I hope you are too looking forward to keeping you up to date in the quarters to come and thanks again.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
Yeah.
[music].
Oh.
Hum.
Yeah.
Uh huh.