Q4 2023 Quest Resource Holding Corporation Earnings Call
Yes.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Quest Resource Holding fourth quarter and full year 2023 earnings conference. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone.
Thank you for standing by this is the conference operator, welcome to the Quest resource holding Corp, fourth quarter and full year 2023 earnings call.
As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call. He may signal, an operator by pressing star zero I would now like to turn the conference.
Operator: Should you need assistance during the conference call, give a signal to an operator by pressing star and zero. I would now like to turn the conference over to Dave Mossberg, Investor Relations Representative. Please go ahead.
Oh Rich, Dave Mossberg Investor Relations Representative. Please go ahead Sir.
David M. Mossberg: Thank you, Carl, 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. The use of words like anticipate, protect, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on Quest's current expectations, estimates, projections, beliefs, and assumptions, and involve significant risk and uncertainties. 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's 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.
Thank you Karl 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 words like anticipate protect 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 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 on course 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 of course 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.
David M. Mossberg: Quest 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 Quest observations and views about industry conditions and developments. 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 or the accuracy of this information.
<unk> as well as quests observations 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 questions not independent independently verified the reliability of the sources are.
Or the accuracy of this information certain non-GAAP financial measures will be discussed during this call.
David M. Mossberg: 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 that the presentation of these non-GAAP financial measures is useful to investors in understanding and assessing the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financial measures discussed in this call will be on a non-GAAP basis. Full reconciliations of non-gap-to-gap 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. Thank you, Dave, and thank you for those joining us on today's call. We made considerable progress at Quest in 2023 and have begun to see the results of the significant investments we've made in the business, both in sales and operations. The actions we've taken today.
These non-GAAP measures are used by management to make strategic decisions forecast future results and evaluate the Companys current performance management believes that the presentation of these non-GAAP financial measures is useful to investors understanding the assess and assessment of the Companys ongoing core operations and prospects for the future unless it is otherwise stated it should be assumed.
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 Chief Executive Officer.
Thank you Dave and thank you for those joining us. Thank you for those joining us on today's call.
We made considerable progress at quest in 2023 and have begun to see the results of the significant investments we've made in the business both in sales and operations.
The actions we've taken to date, adding.
Ray Hatch: Adding to our sales team, broadening our efforts in a number of verticals, investing in our technology and processes, improving our ability to serve clients, improving our ability to scale the business, and increasing our operating profit. All these have positioned us incredibly well, given our robust pipeline, customer focus, efficiency program implementation, and strong competitive position.
Adding to our sales team broadening our efforts in a number of verticals investing in our technology and processes, improving our ability to serve clients improving our ability to scale the business.
And increased operating profits all days are positioned ethics, credibly, well, given our robust pipeline customer focus.
Efficiency program that Pate and plantation and strong competitive position, we expect this momentum to continue into 2024.
Ray Hatch: We expect this momentum to continue into 2024. Simply put, our growth-focused strategies are working. We are extremely encouraged by what we're seeing in the business, both on the top and the bottom line. During the year, we made strides across nearly all facets of our business. We experienced notable customer renewals, growing quality and volume of opportunities in our pipeline, and new business wins, as well as meaningful operational efficiency improvements. We've completed the integration of Acquired Businesses, including RWS, fully incorporating them into the Quest platform. As we mentioned previously, we expect that efficiency initiatives related to RWS will deliver $1.7 million in annual cost savings and expect to generate additional operating efficiencies and expand our margins in 2024. I also want to point out that Glenn Culpepper, our current Quest Director and former Chief Financial Officer of Republic Services, will join the Audit Committee as Chairman.
Simply our growth focus strategies are working we are extremely encouraged by what we're seeing in the business both on the top and the bottom line.
During the year, we made strides across nearly all facets of our business.
We experienced notable cashcall renewals growing quality and volume of opportunities in our pipeline and new business wins as well as meaningful operational.
Patiency improvement.
We've completed the integration of acquired businesses, including our Ws fully incorporating them into the quest platform.
As we mentioned previously we expect that efficiency initiatives related to our Ws will deliver $1 $7 million in annual cost savings and expect to generate additional operating efficiencies and expand our margins in 2024.
I also want to point out that Glenn Culpeper, our current class director and former Chief Financial Officer of Republic services.
Joined the audit Committee chairman.
Ray Hatch: Glenn will provide new leadership and perspective within the critical function, and we're grateful he's assuming this new role. Last quarter, I said I was more excited than ever about the foundation underlying strength of our business. This statement was more bullish than any other I've made in recent years. But just a few months later, evidence of this enthusiasm is borne out. We've renewed two of our largest accounts, and we've signed six new customers in 2024 alone. And as such, I'm even more confident in our outlook. I look forward to sharing more details after the financial review. I'll turn the call over to our CFO, Brett Johnston. Thanks, Ray, and good afternoon, everyone.
Glenn will provide new leadership have perspective within the critical function and we're grateful he is assuming this new role.
Last quarter, I said I'm more excited than ever about the foundation that underlying strength of our business. The statement was more bullish than any other I've made in recent years just a few months later.
But as to the sushi azzam has borne out well.
We've renewed two of our largest accounts, we signed six new customers in 2024 alone and as such I'm, even more confident in our outlook I look forward to sharing more details at the financial review.
I will turn the call over to our CFO Brett <unk>.
Thanks, Ray and good afternoon, everyone.
Brett Johnston: We had strong fundamental performance during the fourth quarter with year-over-year improvement in revenue, gross profit dollars, and profitability. Revenue increased 11.4% during the fourth quarter to $69.3 million. The revenue increase was primarily related to strong demand for recycling and non-recyclable material services from both new and existing customers. However, the revenue increase was partially offset by lower commodity prices realized from certain recyclable materials.
We had strong fundamental performance during the fourth quarter with year over year improvement in revenue gross profit dollars and profitability.
Revenue increased 11, 4% during the fourth quarter to $69 3 million.
The revenue increase was primarily related to strong demand for recyclables and non recyclable material services from both new and existing customers.
The revenue increase was partially offset by lower commodity prices realized from certain recyclable materials.
Brett Johnston: While prices for recyclable materials did somewhat offset growth in revenue during the fourth quarter, it did not affect gross profit dollars. Our customer agreements produce consistent gross profit dollars from recyclable materials based on volumes that are not tied to commodity price fluctuations. For those of you who may be new to our story, this is the reason we use gross profit dollars as a key metric to measure financial performance. www.questresource.com Moving on to gross profit dollar comparisons. During the fourth quarter, we reported $11.5 million in gross profit dollars, a 6.9% increase year-over-year. Fourth quarter gross profit includes the effect of a $1.2 million non-cash adjustment to the cost of revenue related to the RWS business in the prior year periods.
While prices for recyclable materials did somewhat offset growth in revenue during the fourth quarter. It did not affect gross profit dollars are customer agreements produce consistent gross profit dollars from recyclable materials based on volumes that are not tied to commodity price fluctuations.
For those of you who may be new to our story. This is the reason we use gross profit dollars is a key metric to measure financial performance.
Moving onto gross profit dollar comparisons during the fourth quarter, we reported $11 5 million of gross profit dollars, a six 9% increase year over year.
Fourth quarter gross profit includes the effect of a $1 2 million noncash adjustment to the cost of revenue related to the <unk> business during prior year periods.
Brett Johnston: In the process of reconciling RWS accounts payable for periods prior to 2023, we found some items at RWS that were not properly expensed in 2021 and 2022. While the integration of RWS had been slower than we would have liked, given the systems that we inherited and the volume of invoices that needed to be worked through, it is important to keep in mind that substantially all of the adjustments made were related to 2022 and earlier. Any acquisitions will be integrated quickly to avoid this in the future.
In the process of reconciling our ws accounts payable for periods. Prior to 2023, we found some items at <unk> that were not properly expense in 2021 and 2022.
The integration of our Ws had been slower than we would have liked given the systems that we inherited in the volume of invoices that needed to be worked through it is important to keep in mind that substantially all of the adjustments made were related to 2022 and earlier.
Any acquisitions will be integrated quickly to avoid this in the future.
Yeah.
Brett Johnston: I also want to point out that with the integration of RWS and all other acquisitions complete, all our clients acquired organically or through acquisitions are running on the same platform with the same processes and controls. Additionally, through our work to become an accelerated filer at the end of 2023, we have an outside firm test and evaluate our controls and processes. We are confident that our systems, which handle tens of thousands of transactions across hundreds of vendors, can process all our current and growing business. We have not had these types of adjustments in the past with our core operations. Excluding adjustments, we had strong growth in gross profit dollars year over year.
I also want to point out that with the integration of our Ws and all other acquisitions complete all our quiet all all our clients acquired organically or through acquisitions are running on the same platform with the same processes and controls. Additionally.
Additionally, through our work to become an accelerated filer at the end of 2023, we had an outside firm test and evaluate our controls and processes. We are confident that our systems that handle tens of thousands of transactions across hundreds of vendors can process. All our current and growing business. We have had we have not.
Had these types of adjustments in the past with our core operations.
Excluding adjustments, we had strong growth in gross profit dollars year over year.
Brett Johnston: It was a really strong performance in the fourth quarter and a good end to the year. Looking to the first quarter of 2024, we are encouraged by the record number of new customer wins Ray mentioned earlier and expect strong year-over-year growth and sequential growth in gross profit dollars. We expect that to continue through the year. Moving on to SG&A expenses, which were $9.4 million during the fourth quarter, down from $9.8 million during the same period last year and in line with our expectations.
It was a really strong performance in the fourth quarter and a good into the year.
Looking to the first quarter in 2024, we are encouraged by the record number of new customer wins Ray mentioned earlier and expect strong year over year growth and sequential growth in gross profit dollars and expect that to continue through the year.
Moving on to SG&A expenses, which were $9 4 million during the fourth quarter down from $9 8 million during the same period last year and in line with our expectations.
Looking forward, we expect lower integration cost and to gain efficiencies from the investments we made in our platform.
We plan to continue to grow the bottom line continue to pay down debt and reinvest savings into growth and efficiency initiatives continuing to increase our ability to bring value to our clients.
Brett Johnston: Looking forward, we expect lower integration costs and to gain efficiencies from the investments we made in our platform. We plan to continue to grow the bottom line, continue to pay down debt, and reinvest savings into growth and efficiency initiatives, increasing our ability to bring value to our clients. As a result, we expect SG&A expenses to be about $10 million in the first quarter. As efficiency gains are offset by expenses to support new growth and other initiatives, we expect margins to continue to expand from efficiencies and to deliver improving operating leverage in the quarters to come. During the fourth quarter, depreciation and amortization was $2.5 million, which was relatively flat compared with the prior year.
As a result, we expect SG&A expenses will be about $10 million in the first quarter.
As efficient as efficiency gains are offset by expenses to support new growth and other initiatives. We expect margins to continue to expand from efficiencies and to deliver improving operating leverage in the quarters to come.
During the fourth quarter, depreciation and amortization was $2 $5 million, which was relatively flat compared with the prior year.
Moving on to a review of the cash flow and balance sheet.
Our liquidity is in good shape and this high interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management carrying less cash and minimizing borrowings on our line of credit.
Brett Johnston: Moving on to a review of the cash flow and balance sheet, our liquidity is in good shape. In this high interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management, carrying less cash, and minimizing borrowings on the line of credit. As part of our work in capital management, and in light of increasing interest rates, we paid $7 million in voluntary prepayments toward our term debt in 2023, utilizing excess cash. Our cash balance was $324,000 at the end of the fourth quarter, and we had $13.2 million drawn on our $25 million operating borrowing line.
As part of our working capital management and in light of increasing interest rates, we paid $7 million in voluntary prepayments toward our term debt in 2023 utilizing excess cash or.
Our cash balance was $324000 at the end of the fourth quarter, and we had $13 2 million drawn on our $25 million operating borrowing line.
This compares to $12 2 million at the beginning of the year.
Our adjusted EBITDA to senior debt leverage ratio has dropped from four three times in Q4 2022 to three six times in Q4 2023.
Brett Johnston: This compares to $12.2 million at the beginning of the year. Our adjusted EBITDA to Senior Debt Leverage Ratio has dropped from 4.3x in Q4 2022 to 3.6x in Q4 2023, excluding Adjustments.
Excluding adjustments.
To that end to further strengthen quests long term financial position Quest Board of Directors has formed a committee that along with management will evaluate alternative long term debt structures to ensure the company can lower its cost of capital and preserve its ability to maximize growth.
Brett Johnston: To that end, to further strengthen Quest's long-term financial position, Quest's Board of Directors has formed a committee that, along with management, will evaluate alternative long-term debt structures to ensure the company can lower its cost of capital and preserve its ability to maximize growth. The committee is in the process of retaining an independent financial advisor to assist in the process. We look forward to discussing this with you over the course of the year. For the year, we used $1.3 million to fund operations, which was primarily to fund working capital demands at the end of this year. During the fourth quarter, we had slow payments from several of our largest customers, resulting in a $7.8 million increase in accounts receivable. This is a temporary increase in AR, and it is not uncommon for our largest customers to slow pay towards the end of the year, which was the case at the end of 2023. ARDSOs were 75 days at the end of the quarter, but we expect they will return to their average in the low 60s that we have experienced during the last several years. At the end of the year, we had $67.8 million in notes payable versus $74.9 million at the beginning of the year.
The committee is in the process of retaining an independent financial advisor to assist in the process.
We look forward to discussing this with you over the course of the year.
For the year, we used $1 3 million to fund operations, which was primarily primarily to fund working capital demands at the end of this year.
During the fourth quarter, we had slow payments from several several of our largest customers, resulting in a $7 8 million increase in accounts receivable.
This is a temporary increase in <unk> and it is not uncommon for our largest customers to slow pay towards the end of the year, which was the case at the end of 2023.
Our Dsos were 75 days at the end of the quarter, but we expect they will return to their average in the low <unk> that we have experienced during the last several years.
At the end of the year, we had $67 8 million in notes payable versus $74 9 million at the beginning of the year.
The reduction reflects normal principle payments and voluntary term loan prepayments, partially offset by an increase in borrowing on our asset base line with P&C.
Through our cash management efforts and the reduction in borrowings we continue to expect to reduce interest expense by more than $1 million on an annualized basis.
Ray Hatch: The reduction reflects normal principal payments and voluntary term loan prepayments, partially offset by an increase in borrowing on our asset base line with PNC. Through our cash management efforts and the reduction in borrowings, we continue to 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. Thank you, Brett.
At this time I'll turn the call back to Ray.
Thank you Brett I have a lot of positive highlights to share with you today, most exciting of which is the momentum of our organic growth initiatives. So I'll start off there.
The pace of signing new business coming out of the end of the year has picked up significantly.
And we have continued to gain momentum in the beginning of 2024.
We have more new client went to talk about on this call than ever in recent history. We're seeing the results of the hard work by many of the team over the last two years to develop our go to market sales efforts for producing record customer wins and meaningfully expanding existing client relationships had an accelerated pace.
Ray Hatch: I have a lot of positive highlights to share with you today, the most exciting of which is the momentum of our organic growth initiatives. So I'll start off there. The pace of signing new business coming out at the end of the year has picked up significantly, and we have continued to gain momentum in the beginning of 2024. We have more new client wins to talk about on this call than ever in recent history. We're seeing the results of the hard work by many of the team over the last two years to develop our go-to-market sales effort, for producing record customer wins and meaningfully expanding existing client relationships at an accelerated pace. We've recorded six new client wins; three of them are seven-digit, and another one is an eight-digit one.
We have recorded six new client wins three of our seven digit and another one is an eight digit land.
In addition, we've expanded a smaller customer to seven digits.
And renewed and expanded services with two of our largest customers the rate of this new customer growth is unprecedented for class and we're excited for the future.
The eight figure win is with a fortune 200 company as one of the largest food distributors in the U S. This is a new end market vertical for us in the first sector, one that I know well from IPO distribution days, we believe we'll be able to say more about this over the next few weeks, we will begin servicing this client during the second quarter and anticipate they will ramp quicker.
Over a three month period.
Previously this client was handling their solid waste through a vertically integrated national provider. This was a competitive process and we want that based on our reputation cost effectiveness align commitment to diverting greater portion of waste from landfills and the ability for us to provide added visibility for my data portal and platform.
Ray Hatch: In addition, we've expanded a smaller customer to seven digits, and Renewed and Expanded Services with two of our largest customers. The rate of this new customer growth is unprecedented for Quest, and we're excited for the future. The eight-figure win is with a Fortune 200 company that's one of the largest food distributors in the U.S.
The three seven figure lands for with one one.
One industrial company and two large retailers all three of these clients are large companies with national footprints, while began servicing all of them at the beginning of the second quarter and the opportunity exists to significantly expand our lines of service with all three of these customers with one of the retailers and the industrial client we have the opportunity to grow these to a pickers.
Ray Hatch: This is a new end-market vertical for us in the food sector, one that I know well from my food distribution days. We believe we'll be able to say more about this over the next few weeks, and we'll begin servicing this client during the second quarter and anticipate they'll ramp quickly over a three-month period. Previously, this client was handling their solid waste through a vertically integrated national provider. This was a competitive process, and we wanted it based on our reputation, cost effectiveness, aligned commitment to diverting a greater portion of waste from landfills, and the ability for us to provide added visibility from our data portal and platform. The 37-figure wins were with one industrial company and two large retailers.
And an annual revenue over time.
In addition, we had two smaller wins, including one with a new automotive surface client with our initial engagement will began servicing a dozen of their.
There are several hundred locations and are actively working to secure their entire footprint.
In addition to closing several deals in recent months, we've continued to see a noticeable uptick in.
And not only the number but the size of opportunities in our pipeline.
With excess success, we're having with new client wins, we plan to accelerate our investment in organic growth initiatives, including investments in marketing and sales during 2024.
On our last call we spoke about the new sales leadership and investments in sales operations that will allow our sales folks to spend more time on closing.
Ray Hatch: All three of these clients are large companies with national footprints. We'll begin servicing all of them at the beginning of the second quarter, and the opportunity exists to significantly expand the lines of service with all three of these customers. With one of the retailers in the industrial cloud, we have the opportunity to grow it to eight figures in annual revenue over time. In addition, we had two smaller WIMs, including one with a new automotive service client.
Last time on a more administrative functions such as proposals and lead generation.
In addition, we're shortening the sales cycle by simplifying our contracts and using our new sourcing tool to turnaround proposals more quickly or.
Our sourcing tool allows our staff to look across our entire footprint vendors prequalification of pricing data the tool reduces the time it takes for our staff to find off total solutions from days to minutes.
These investments in sales are helping us grow our pipeline shorten the sales cycle and create a better yield and converting proposals into agreements going forward.
Ray Hatch: With our initial engagement, we'll begin servicing a dozen of their several hundred locations and are actively working to secure their entire footprint. In addition to closing several deals in recent months, we've continued to see a noticeable uptick in not only the number, but the size of opportunities in our population. With the success we're having when a new client wins, we plan to accelerate our investment in organic growth initiatives, including investments in marketing and sales during 2024. On our last call, we spoke about the new sales leadership and investments in sales operations that will allow our sales folks to spend more time closing and less time on the more administrative functions such as proposals and lead generation. In addition, we're shortening the sales cycle by simplifying our contracts and using our new sourcing tool to turn around proposals more quickly. The sourcing tool allows our staff to look across our entire footprint of vendors for qualification and pricing data. The tool reduces the time it takes for our staff to find optimal solutions from days to minutes.
Regarding client renewals, we have recently signed multiyear renewals and expanded our engagement with two of our largest clients.
It says a lot about our value add when clients awarded additional business that comes as a direct result of our focus on long term strategic relationships.
And not having relationships that are transactional in nature.
Importantly, our success is also driven by our people.
We have an outstanding team of operations folks that go above and beyond to help our clients and.
And cost effectively meet or exceed their sustainability goals and I really want to recognize them for their hard work because of our strategic client relationship focus and our great people. The average engagement of our top 20 clients is nine years, our land and expand strategy has consistently delivered solid growth from our existing client base in the last five years.
And we feel there are ample opportunities for continued growth from our existing clients for multiple years to come.
I will now review a review of the investments, 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.
The <unk> technology platform has been a key deciding factor for several competitive land and has helped us maintain enduring client relationships.
The incremental value that we provide.
In recent years, we've stepped up investments in our technology platform. So that we can say ahead and continuously improve client value efficiency and scalability.
Ray Hatch: These investments in sales are helping us grow our pipeline, shorten the sales cycle, and create a better yield in converting proposals into agreements going forward. Regarding client renewals, we have recently signed multi-year renewals and expanded our engagement with two of our largest clients. It says a lot about our value add when clients award you additional business. It comes as a direct result of our focus on long-term strategic relationships and not having relationships that are transactional in nature.
We're actively introducing additional technology improvements in 2020 for these improvements will enable us to further automate.
Lower the cost process invoices provide major enhancements to our ability to scale and to expand our margins.
A good example is a new vendor source until that I discussed earlier, which is helping us accelerate our quoting and onboarding process and in addition, we're rolling out a technology enhancement that will allow us to further automate the processing of vendor invoices and achieve significant cost savings and margin improvements.
Ray Hatch: Importantly, our success is also driven by our people. We have an outstanding team of operations folks that go above and beyond to help our clients cost-effectively meet or exceed their sustainability goals, and I really want to recognize them for their hard work. Because of our strategic client relationship focus and our great people, the average engagement of our top 20 clients is nine years. Our land and expanse strategy has consistently delivered solid growth from our existing client base over the last five years, and we feel there are ample opportunities for continued growth from our existing clients for multiple years to come. I will now review the investments 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.
Our technology investments are aimed at improving customer experience increase in efficiency and lowering our cost to serve.
A great example, as vendor management, we've added more than 400, new vendors to our platform, while adding seven new service lines, all of which have great revenue potential across our customer base.
Our technology is enabling us to do this faster more efficiently and at a lower cost over the past year, we've launched our vendor portal, which allows an automated self service type of completion documentation and onboarding for vendor. This is saving hours of work increasing accuracy and lowering our costs.
Before I move onto our outlook, let me make a brief comment about the macro environment and our views on inflation and.
And broader economic uncertainty.
During the fourth quarter and in recent months, we continued to see stable activity levels across our end markets.
And we managed cost pressures and fluctuation in the price of recycled materials as well.
Waste business is generally resistant recession, 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.
Ray Hatch: The technology platform has been a key deciding factor for several competitive wins, and it's helped us maintain enduring client 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. We're actively introducing additional technology improvements in 2024. These improvements will enable us to further automate, lower the cost to process invoices, and provide major enhancements to our ability to scale and expand our margins. A good example is a new vendor source and tool that I discussed earlier, which is helping us accelerate our quoting and onboarding process. In addition, we're rolling out a technology enhancement that will allow us to further automate the processing of vendor invoices and achieve significant cost savings and margin improvement. Our technology investments are aimed at improving the customer experience, increasing efficiency, and lowering our cost to serve. A great example is vendor management.
Regarding our outlook I want to emphasize that conviction on our trajectory and on 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 for 2024 and beyond.
I feel very good about the organic growth we have in front of us.
Pressure to improve sustainability, increasing regulation, increasing cost of landfills continue to lower bar for adoption of our recycling services.
We have multiple sources of organic growth from expanding with our existing clients ramping up recent wins and growing our pipeline of new business.
I also want to reiterate that we have a large opportunity to grow gross profit dollar growth on a cost side by optimizing the business we have in hand.
As we bring revenue under our platform, we've proven our ability to optimize cost of services through vendor relations and procurement management that drives our continued growth in gross profit dollars semi.
Similarly, we have multiple ways of improving efficiency by utilizing the technology investments we've made over the last several years.
With the integration of our Ws complete it has transitioned from being a distraction to value added part of our overall business, while the cleanup adjustments for our Wf has been very frustrating. We're now running all of our business on a common platform through our integration efforts and other actions, we expect to recognize approximately $1 7 million.
Ray Hatch: We've added more than 400 new vendors to our platform, while adding seven new service lines, all of which have great revenue potential across our customer base. Our technology is enabling us to do this faster, more efficiently, and at a lower cost. In the past year, we launched our Vendor Portal, which allows an automated self-service type of completion, documentation, and onboarding for a vendor.
And annualized savings from our Ws a portion of which began during the fourth quarter of 'twenty three.
We also expect additional savings from other initiatives as well.
Finally, we have reduced our leverage will continue to pay down debt and plan to lower our cost of capital while preserving our ability to grow.
Ray Hatch: This is saving hours of work, increasing accuracy, and lowering our cost. Before I move on to our outlook, let me make a brief comment about the macro environment and our views on inflation and Broader Economic Uncertainty. During the fourth quarter and in recent months, we continue to see stable activity levels across our NMARC. We manage cost pressures and fluctuations in the price of recycled materials as well. The waste business is generally resistant to recession.
With fiscal 'twenty four now underway, we look ahead with great confidence the work we've done.
Centered on building, a consistent and sustainable business focused on providing value services to our clients.
Foundation is set for continued success and to build value for our shareholders. We expect our momentum to carry through this year and beyond I couldnt be more excited about what's to come 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.
Ray Hatch: And our clients continue to generate ways during the top and the bottom of the cycle. We also have compelling and differentiated value propositions, which create strong client relationships that endure during periods of economic weakness. Regarding our outlook, I want to emphasize the conviction on our trajectory and on 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 in 2024 and beyond. I feel very good about the organic growth we have in front of us. Pressure to improve sustainability, increasing regulation, and increasing costs of landfills continue to lower the bar for adoption of our recycling service.
Thank you.
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The first question comes from Erin Mahalla, So Craig Hallum. Please go ahead.
Yes, good afternoon rain, Brad Thanks for taking the questions.
Hi, Eric.
Hi.
Maybe first thanks.
Thanks for the color on the wins and definitely good to see can you just talk about are you starting to see improvement in pipeline conversion or is it still kind of status quo.
Ray Hatch: We have multiple sources of organic growth from expanding with our existing clients, ramping up recent wins, and growing the pipeline of new business. I also want to reiterate that we have a large opportunity to grow gross profit dollar growth on the cost side by optimizing the business we have in hand. As we bring revenue onto our platform, we've proven our ability to optimize the cost of services through vendor relations and procurement management that drives our continued growth in gross profit dollars. Similarly, we have multiple ways of improving efficiency by utilizing the technology investments we've made over the last several years. With the integration of RWS complete, it has transitioned from being a distraction to a value-added part of our overall business. While the cleanup adjustments for RWF have been very frustrating, we're now running all of our business on a common platform.
Just given the macro and then you know maybe not customer by customer, but it sounds like there's still some good potential for land and expand there and then just also on the Onboarding times, you kind of mentioned a handful of months.
Can you just kind of talk about where that stands today and some of the efforts there to kind of shorten those onboarding times.
Yeah I'll go to the.
A question about the pipeline.
We're really focused on on growing that with quality clients or prospects I guess at that point and it's really it's accelerated and is continuing to accelerate I really.
I want to congratulate the sales team for.
Ray Hatch: Through our integration efforts and other actions, we expect to recognize approximately $1.7 million in annualized savings from RWS, a portion of which began during the fourth quarter of 2023. We also expect additional savings from other areas as well. Finally, we have reduced our leverage, will continue to pay down debt, and plan to lower our cost of capital while preserving our ability to grow. With fiscal 24 now underway, we look ahead with great confidence.
Being very aggressive in getting the message out and getting a man so as far as conversion rate guys.
It's obviously picked up erinn.
The number of signed deals that we have and just in the last several months have exceeded anything we've done for several years frankly as far as new clients scale.
So we're excited about that so I guess you can say the pipeline is moving more quickly and is bringing us really the type of clients were looking for and your second comment I believe is about land and expand.
All of these clients some of them with huge amounts of upside.
Ray Hatch: The work we've done is centered on building a consistent and sustainable business focused on providing valued services to our clients. The foundation is set for continued success and to build value for our shareholders. We expect our momentum to carry through this year and beyond. I couldn't be more excited about what's to come.
These are relatively large clients with them.
That is generating a lot of waste in and have a lot of need for what quest is bringing them. So.
Im really excited about.
The ability to continue to ramp those things up and mind continuous new revenue and profit.
Profitable exercises through those those new clients, we're bringing on board and the ones that we already Avalon.
And what was it that you haven't yet another part there and I took out it was about ramp up time I believe.
Operator: I look forward to keeping you updated on our progress. We now like the operator to provide instructions on how listeners can queue up for questions. Operator?
Yes, and some of it depends on the type of client Erinn I mean, some of them are <unk>.
30 to 60 days some of them are a couple of quarters.
Industrial ones take a little longer.
Operator: Thank you. We will now begin the question and answer session. To join the question queue, you may press star and 1 on your telephone. You will hear a tone. If you're using the speaker...
But I think we mentioned specifically on the largest one we just mentioned we're looking at 90 days or less window of ramp so as we move through Q2 that should <unk>.
Operator: Please pick up your handset before pressing, to a dryer, pause for a moment. The first question comes from Aaron Spychalla of Craig. Yeah, good afternoon, Ray and Brett. Thanks for taking the question. Hi Aaron. Hey Aaron.
That should get us through the <unk>.
The ramp on that client others are discount as they as they come.
Understood. Thanks, and then just maybe on free cash flow are you touched on it a little bit but it sounds like that was mostly kind of working capital related to end. The year. Just it sounds like are you thinking that that improves as we kind of move throughout 2024.
Aaron Michael Spychalla: Hi. You know, maybe first, you know, thanks for the color on the winds. It's definitely good to see. Can you just talk about, are you starting to see, you know, improvement in pipeline conversion? Or, you know, is it still kind of status quo? You know, just given the macro?
Yes, absolutely and we've talked about that at the timing, we expect to finish the quarter strong, especially on AAR and collect a lot of that that push forward. So you back that out.
Ray Hatch: And then, you know, maybe not customer by customer, but it sounds like there's still some good potential for them to land and expand there. And then also on the onboarding times, you kind of mentioned a handful of months. Can you just kind of talk about where that stands today? And some of the efforts there to kind of shorten that onboarding time? Yeah, I'll go to that.
And we certainly would have would have finished the year.
A generator of cash operating cash so we feel feel really confident about going forward.
Alright, and then if I could just sneak one more in just just on the our ws kind of revenue adjustment in the quarter can you just kind of talk about you know are we kind of complete with those.
Ray Hatch: The question about the pipeline, we're really focused on growing that with quality clients or prospects, I guess, at that point. And it's really, it's accelerated, and it's continued to accelerate. I really want to congratulate the sales team for being very aggressive in getting the message out and getting them in. So as far as the conversion rate goes, it's obviously picked up, Aaron, because the number of signed deals that we have had in just the last several months have exceeded anything we've done for several years, frankly, as far as new clients go. So we're excited about that. I guess you can say the pipeline's moving more quickly, and it's bringing us the type of clients we're looking for. And your second comment, I believe, was about LAN and EXPAND. All of these clients, some of them with huge amounts of upside.
Integration initiatives and hopefully.
And here too much more there moving forward.
Absolutely and just to be clear it was the cost of revenue not not a revenue adjustment. So it was on the cost side.
And absolutely we knew we needed to get them on our platform our processes first and foremost and then it was just about going back and doing some cleanup work. So we feel very confident going forward.
Alright, thanks for taking the questions and congrats on all the progress I'll turn it over.
Thank you Sir.
Your next question comes from Gerry Sweeney of Roth Capital. Please go ahead.
Mr. Sweeney. Your line is open. Please go ahead Sir.
Ray Hatch: These are relatively large clients that are generating a lot of waste and have a lot of need for what Quest is bringing them. So I'm really excited about the ability to continue to ramp those things up and mine continuous new revenue and profit, profitable activities through those new clients we're bringing on board and the ones that we already have. And what was the yeah, you had another part there, and I took it Oh, it was about ramping up time, I believe. Yep. And, you know, some of it depends on the type of client, Aaron. I mean, some of them are 30 to 60 days, some of them are a couple of quarters, you know, industrial ones take a little longer.
Hey, sorry about that I was on mute.
Brett Thanks for taking my call.
Question on <unk>.
Food side or the.
Food distributor when I was curious if this has to deal with the <unk> program and if it does maybe in July.
Fortune 200 company.
Affordable Gwen.
Thanks for organics.
The potentially into the rest of the industry.
So that's one of the great things about.
All the multiple services that quest has to offer initially.
It doesn't have it but thats because it.
But it's expanding to that overtime. So that's all upside for us as we move through the next few months with them.
Ray Hatch: But I think we mentioned specifically on the largest one we just mentioned, we're looking at a 90 days or less window of ramp. So as we move through Q2, that should get us through the ramp on that client. Others are just coming as they come.
And then also there's there's things like fleets and other stuff too. So there's a infinite number of penetration opportunities there and we're excited about program expand part of that and yes.
Brett Johnston: I understand. Thanks. And then just maybe on free cash flow, you touched on it a little bit, but it sounds like that was mostly kind of working capital related to the end of the year. You know, just just it sounds like are you thinking that that improves as we kind of move throughout 2024? Yeah, absolutely. And we talked about that at the timing, we expect to finish the quarter strong, especially on AR, and collect a lot of that to push forward. So you should back that out.
This is our first.
Service food distributor.
And I'm, obviously from my background pretty excited about that and we think that this is going to hopefully yield us a lot of penetration of that vertical go going forward.
So suffice to say $10 million.
David So I'm, saying $10 million, hopefully, maybe a little more that's even without without <unk>. So I mean, that's I mean.
That's a big win with a lot of runway in front of it.
Brett Johnston: And we certainly would have finished the year as a generator of cash operating cash. So we feel really confident about going forward. All right, and then if I can just sneak one more in on the RWS kind of revenue adjustment in the quarter, can you just kind of talk about, you know, are we kind of complete with those, you know, integration initiatives, and you know, hopefully, you know, shouldn't should hear too much more there moving forward. Absolutely. And just to be clear, it was a cost of revenue, not a revenue adjustment. So it was on the cost side.
Yes.
Yeah.
The revenue piece there is without all the penetration pieces that we expect to be bringing in the relative near future.
Got it.
Couple of questions SG&A $10 million I think on Q1, you talked about spending a little bit on talcott, but also ramping up I think.
Sales and marketing.
If memory serves correct you get a little older.
Hi, I was under the impression technology spending may be coming down a little bit, but I'm, just curious as to where.
Spending on sales and marketing is great, especially if you can get a return on it I understand that just curious as to where SG&A will come out in the future.
Brett Johnston: And absolutely, we knew we needed to get them on our platform, our processes, first and foremost, and then it was just about going back and doing some cleanup work. So we feel very confident going forward. All right, thanks for taking the questions and congratulations on all the progress. I'll turn it over to Jerry Sweeney of Ross Capital. Go to www.
Certainly for tire how much technology versus increasing.
Sales and marketing.
Yeah, So I'll take that one.
As we mentioned we've got we feel really confident with the efficiency initiatives. We've got going on continue to build out the platform. So.
Operator: QuestResource.com to learn more. Mr. Sweeney, your line is open, please go ahead. Sorry about that; I was on mute during the call.
I would look at our operating leverage to continue.
And B keep we should be able to maintain relatively flat operating expenses over over the year.
Ray Hatch: So that's one of the great things about all the different services that Quest has to offer. Initially, it doesn't have them, but that's because, but it's expanding to that over time. So that's all upside forced as we move through the next few months with them. And then also there's things like fleets and other stuff too. So there's an infinite number of penetration opportunities there, and we're excited about Progadex being part of that. And yes, this is our first food service food distributor. And I'm, obviously, from my background pretty excited about that. And we think that this is going to hopefully yield us a lot of penetration into that vertical going forward. So, suffice to say, 10 million, well, eight digits, more, but that's even without ProCanix.
Despite a little bit of a national maybe a little bit of pick up in some additional.
Spending.
As you said to support the growth we want to make sure.
More funding that and excited about the accelerated growth around new new customers.
We do feel we'll have a little bit of spend continue we're still building out some of those operating platforms.
And as we get closer to the.
The back half of the year, we will start seeing those efficiencies come through and start so youll start offsetting some of that need.
On the customer to support the new customer revenues.
Got it so.
SG&A as a percentage of sales.
It comes down in the second half or is that a fair way of absolutely.
Gerard J. Sweeney: So, I mean, that's a big win with a lot of... Yeah, the revenue piece there is without all the penetration pieces that we expect to be bringing in in the relatively near future. Got it. A couple questions SG&A 10 million. I think in Q1, you talked about spending a little bit on tech but also ramping up, I think, sales and marketing. If memory serves, I'm getting a little old.
That's a very fair way to look at it.
Right a little open ended question here.
We're through our Ws.
Spent a lot on technology it sounds like the sales pipeline.
And conversions picking up.
There's still a lot on the plate there I don't want to get the carpet for the horse, but what in your mind. What is the biggest goal for 2024 with some of that I just laid out or is it other write offs.
Gerard J. Sweeney: I was under the impression technology spending may be coming down a little bit; curious as to where... Spending on sales and marketing is great, turning on it. I understand that. Just curious as to where SG&A will come from. Certainly, if it's higher. Yeah, so I'll take that one.
Well its at a macro level Gerry.
Sure.
We're really excited about the new revenue and don't forget I think the ops team has done a fantastic job of penetrating and driving new revenue from the existing clients as well when you put those together, we see some really nice topline momentum.
Brett Johnston: As we mentioned, we feel really confident with the efficiency initiatives we've got going on to continue to build out the platform. So, you know, I would look at our operating leverage to continue and keep it. We should be able to maintain relatively flat operating expenses over the year, despite a little bit of an initial, maybe a little bit of pickup in some additional expenses. Spending, as you said, to support growth. We want to make sure. We're funding that and excited about the accelerated growth around new customers. So I do feel we'll have a little bit of spin continue. We're still building out some of those operating platforms. If we get closer to the back half of the year, we'll start seeing those efficiencies come through, and so you'll start offsetting some of that need on the customer to support the new customer revenue. Got it. So, SG&A's percentage of sales probably comes down in the second. Is that a fair way to recommend it?
And combined with I can't say enough about we use of our technology that I was noticing when I was reading this.
It's in there so many times, but it is it is an area of emphasis in.
The technology is enabling us to scale and drive EBITDA margins.
So I think it's a perfect storm, we've been investing where that team for almost two years I guess.
Driving our platform and driving towards zero touch environment on on invoicing and all the paperwork internally here I can't tell you I use that is so as you look at quest larger scale 2024, you should see lower SG&A through this as we move into the back half and really get implementation on this stuff.
Nice margins and revenue growth, which is going to yield us I think some improving EBITDA margin as Gerry.
Brett Johnston: Yes, absolutely. That's a very fair way to look at it. Ray, a little open-ended question here, or to RWS. Spent a lot on technology. Sounds like the sales pipeline. There's still a lot on the plate there. I don't want to get the carpet for the horse.
A lot of companies I have been with them either.
Really touting your growth and thats, it or you're touting your cost savings in that but I really think we have both levers going right now so that's pretty exciting for us in 'twenty four.
Gerard J. Sweeney: But in your mind, what is the biggest goal that I just laid out? Well, it's at a macro level, Jerry.
Got it gross.
And efficiency.
Got it alright, yes.
Yeah.
Ray Hatch: We're really excited about the new revenue. And don't forget, I think the operations team is doing a fantastic job of penetrating and driving new revenue from existing clients as well. When you put those together, we see some really nice top-line momentum. And combined with, I can't say enough about, We use the word technology. I was noticing when I was reading this that it's in there so many times.
Very much appreciate it.
In a few days so we look forward to connecting.
You bet. Thanks Gerry.
Okay.
The next question comes from Greg <unk>.
A nickel fund. Please go ahead.
Hi, Ray and Brett.
Hi, Greg Greg.
On the Q3 earnings call. You said there were several very large opportunities that have progressed to the final stages of approval and so I would assume that this one two distributor customer was one of those opportunities.
Ray Hatch: But it is an area of emphasis, and the technology is enabling us to scale and drive, even on margins. So I think it's a perfect storm. We've been investing in that team for almost two years, I guess, and driving a platform and driving towards a zero-touch environment on invoicing and all the paperwork internally here. I can't tell you how huge that is.
Final of several late stage opportunities is that right.
Yeah, a couple of those.
Once we were talking about in Q3.
So yes.
Sure. Thank you. Okay. So you had you had a couple of closed do you have when you look at your pipeline now and obviously congratulations this was a great quarter.
Ray Hatch: So as you look at Quest's larger-scale 2024, you should see lower SG&A as we move into the back half and really get implementation on this stuff. Nice margins and revenue growth, which is going to yield us, I think, some improving EBITDA margins, Jerry. A lot of companies, I've been with them, you're either really touting your growth, and that's it, or you're touting your cost savings, and that's it. But I really think we have both levers going right now. So that's pretty exciting for us in 2024. Grocery.
I'm really excited to see six wins in the quarter several years ago.
They weren't that six wins in a year.
Now Youre right Youre right start to the year or are there still other customers when youre looking at your pipeline today that you say theres still other stuff out there that we're excited about where did you see a lot of that a lot of the opportunities in your pipeline kind of come through and close already.
Ray Hatch: All righty, yeah. I very much appreciate it. I'll see you in a few days, so look forward to it.
Gerard J. Sweeney: You bet. Thanks, Jerry. The next question comes from Gregg Kitt of Pinnacle Fund; please go ahead. Hi, Ray and Brett.
Greg Kitt: Hi Greg. Could you, on the Q3 earnings call, you said there were several very large, Progress, http://TheBusinessProfessor.com, One Food Distributor Customer was one of those. Funnel of Several Late-Stage Operations. Yeah, a couple of those were ones we were talking about in Q3.
No we've got.
We're excited about what's in that pipeline now what we're talking about obviously, the six we've mentioned or.
Are there.
There are some more of that or better closer than than further away I guess I'm trying to describe it a fair how to describe it and now the pipeline is very healthy as strong as it's as good as I've seen it and you would think after signing six six clients considering our track record in the past I guess do you think that might have emptied it out.
Ray Hatch: So yeah. Thank you. Okay, so you had a couple closed. Do you have, when you look at your pipeline now, and obviously, congratulations, this was a great quarter. I'm really excited to see six wins in a quarter several years ago, but there were not six wins in a year.
If thats, what youre asking right now.
We're very encouraged about.
What remains in there and.
We mentioned in the remarks I just.
Want to reemphasize it we talked about investment in sales and.
Ray Hatch: No, you're right, you're right. Are there still other customers when you're looking at your pipeline today that you say, Hey, there's still other stuff out there that we're excited about? Or did you see a lot of that; a lot of opportunities in your pipeline kind of come through and close? No, we're excited about what's in that pipeline now. What we're talking about, obviously, the six we mentioned are there. There are some more that are closer than further away, I guess; I'm trying to figure out how to describe them.
And marketing.
Part of the investment in sales is a bit of a structural change.
And that and I've mentioned that in their sales operations.
Folks.
To allow and get more out of that existing sales force or they're spending more time closing.
And less time doing proposals take forever, so while a lot of our investment has to do with enabling.
These folks to be able to be more focused on driving that pipeline and building. It forward and one of the roles that we've added is is that as a director of sales operations in that.
Ray Hatch: But no, the pipeline is very healthy and strong. It's as good as I've seen it. And you would think after signing six clients, considering our track record in the past, I guess, you'd think that might have emptied it out, I guess, if that's what you're asking. But no, we're very encouraged about what remains in there. And we mentioned it in the remarks. I just want to reemphasize it. We talked about investment in sales and marketing. Part of the investment in sales is a bit of a structural change, and I mentioned that in there, the sales operations folks, to allow and get more out of that existing sales force where they're spending more time closing and less time doing – I mean, proposals take forever.
That person is a is a veteran in the industry that knows how to implement.
Large new clients and implementing large new clients is what we're doing now and what we hope to continue to do.
The worst thing that could happen, Greg as you do a great job selling but then you can onboard them in a reasonable period of time and Trust me there is an art to that.
So we foresaw that and really have the right talent in place to be able to make sure that we can.
I'll go ahead, and say flawlessly and put pressure on them.
Implement these new these new accounts that were bringing on.
Thank you that was that was helpful. On the large food distributor customer I think if I heard you correctly I think it sounded like I think I heard you say that you can talk more about that in a couple of weeks did I hear that right.
Ray Hatch: So a lot of our investment has to do with enabling these folks to be able to be more focused on driving that pipeline and building it forward. And one of the roles that we've added is a director of sales operations, and that person is a veteran in the industry that knows how to attract large new clients. And implementing large new clients is what we're doing now and what we hope to continue to do. The worst thing that could happen, Greg, is you do a great job selling, but then you can't onboard them in a reasonable period of time. And trust me, there's an art to that.
Yes, yes, we're not quite in a position to be able to do that but we anticipate being able to be more forthcoming on it.
In a few weeks.
Okay, great. Thank you and so is there the potential that you might be able to tell everybody who that customer is or it sounds like.
And it sounds like there is more information to come.
Ray Hatch: So we've foreseen that and really have the right talent in place to be able to make sure that we can... I'll go ahead and say flawlessly and put pressure on them, implement these new accounts that we're bringing them. Thank you. That was that was helpful to the large food distributor customer. I think if I heard you correctly, I think it sounded like I think I heard you say that you could talk more about that in a couple weeks. Did I hear that right?
Yeah.
Yes, that's what we're talking about we're hopeful that we'll be able to share more information on that customer. We're really proud of them. So we'll see what we can share with you in a few weeks Craig.
Thanks, Thanks, Ray and then.
You bet I always think that eight figure commentary is really <unk> 10 million to $99 million of revenue.
Ray Hatch: Yes, yeah, we're not quite in a position to be able to do that, but we anticipate being able to be more forthcoming on it in a few weeks. Okay, great. Thank you. And so is there the potential that you might be able to tell everybody who that customer is? Or it sounds like, there's more information.
Yeah.
Okay.
Is there any way to think about how that can obviously youre going to start ramping I think you said in the second quarter is there any any way to think about how that customer could progress over several years, especially as you talked about fleet and you talked about <unk>, one point, becoming an opportunity.
Ray Hatch: Yeah, that's, yeah, that's what we're talking about. We're hopeful that we'll be able to share more information with that customer. We're really proud of them.
We hope to have all of that.
Ray Hatch: So we'll see what we can share with you in a few weeks. Thanks. Thanks, Ray. And then, I always think that eight-figure commentary is really... 10 million to $99 million of revenue is a big range.
It's a large customer in at somewhere it's probably closer to 10 99, Greg just to give you full traction.
Okay.
Yes.
And as with a lot of these larger customers they've got huge amounts of potential spin and that's just the that's just where we're starting I mean.
Ray Hatch: And so is there any way to think about how that can, obviously, you're going to start ramping, I think you said in the second quarter, is there any way to think about how that customer could progress over several years, especially as you talked about fleet and you talked about progenics at one point becoming an opportunity? We hope to have all that you know, it's a big customer, and it's somewhere it's probably closer to 10 than 99 Greg, just to give you a little correction. And, as with a lot of these larger customers, they've got huge amounts of potential spend. And that's just the beginning. That's just where we're starting. I mean, we're going to earn our way to the rest of it. But I can't really give you a share of the wallet number.
We're going to earn our way to the rest of it but.
I can't really give you a share of wallet number I know, that's what I'd be looking for power you.
But it's it's.
Thats, probably as much or more than what we're getting on the front side.
Thank you.
Okay.
So you are winning all these customers you want to make sure that you're in a position to service them, well and I am sure that you want.
It's like a this balance between flexibility.
And cost and you could probably get in when you put the Monroe facility in place I think this current facility was like coming out of Covid I think it was the fall of 2020, something like that and you were doing $4 5 million of EBITDA and so now youre doing 16, probably quite a bit more this year.
Ray Hatch: I know that's what I'd be looking for if I were you. But it's, it's, it's probably as much or more than what we're getting on the front side. Thank you. On the debt refi piece, so you're winning all these customers, you want to make sure that you're in a position to service them well, and I'm sure that you want to. It's like this balance between flexibility and cost, and you could probably get even when you put the Monroe facility in place. I think this current facility was like coming out of COVID. I think it was the fall of 2020,
Because you had some.
Our Ws specific stuff you had one customer thing last year, there was a charge in the third quarter and so all of that should go away. This year like it's not unreasonable to say you can do 20 million of EBITDA. This year.
No.
Business in terms of EBITDA is up almost five X probably.
Greg Kitt: And you were doing four and a half million. And so now you're doing 16, probably quite a bit more this year because you have some RWS specific stuff. You had one customer thing last year that was a charge in the third quarter. And so all that should go away this year. Like, it's not unreasonable to say you could do 20.
Is there something that you can do that gives you flexibility, but still brings the rate down from like.
And a half on that Monroe piece, while you're winning all of this business. So that you are making sure you have the flexibility to execute well.
Yes, Greg I think you nailed it for us you've pretty much answered answered the question for US that's exactly why we formed.
Greg Kitt: So, you know, the business. In terms of EBITDA, it is probably up almost 5x probably. Is there something that you can do that gives you flexibility but still brings the rate down from like, you know, 11 and a half? Microsoft Office Word Document.
The board and management are formed this committee is to make sure that we're able to do exactly that we don't want to handicap the growth that we've got but.
We're really confident we're going to continue to grow we want to be able to support that at the same time, we like cheaper interest rates.
Brett Johnston: Document.8, Greg, I think you nailed it for us. You pretty much answered the question for us. That's exactly why we formed the board of management, formed this committee, to make sure that we're able to do exactly that. We don't want to handicap the growth that we've got. We're really confident we're going to continue to grow, and we want to be able to support that. At the same time, we'd like lower interest rates.
It's a higher rate environment right now and we think we're going to be in a better position.
In the future as we demonstrate better demonstrate.
The value right with <unk>.
To enhance margins.
And better flow through rate so.
We're really excited about where we're going to end up.
Yes.
Yeah.
Do you think that that process is there some way to think about how you know.
Brett Johnston: It's a higher rate environment right now, and we think we're going to be in a better position in the future as we better demonstrate the value with enhanced margins and a better flow-through rate, so we're really excited about where we're going to end up. Thank you. Do you think that that process is there some way to think about how, you know, when that could conclude?
When that could conclude is that something that you expect to finish in 2024 by the end of the year or do you think that could be sooner.
Yeah.
I think thats, probably a fair starting point from a deliverable.
Greg Kitt: Is that something that you expect to finish in 2024 by the end of the year? Or do you think that, I think that's probably a fair starting point from a deliverable, you know, we'll probably have some room for it to push a little bit more if we need it to. You know, so it's hard to set a timeline right now.
We'll probably have some room for it to push a little bit more if we need it to.
So it's hard to set a timeline right now we need to start we need to find the pick an advisor and start meeting and work through the options that we've got.
Greg Kitt: We need to start; we need to find, pick an advisor and start meeting and working through the options that we've got. Okay, thank you. And then on SG&A, a little bit of a step up in Q1, and some of that sounds like tech, but probably also maybe some of these integrations, not sure. Is there a way to, you know, in the past when we first invested? We would see 50% of incremental gross profit dollars fall to EBITDA. And so if you were investing in SG, and obviously, the business changed a lot because you're investing to scale it much better, which we're excited about, but in the first quarter, if we're seeing SG&A increase by $500,000 or $600,000 sequentially, should we think that there may not be a $500,000 or $600,000 sequential increase?
Okay.
Thank you and then on SG&A.
That a little bit of a step up in Q1 and some of that as.
It sounds like tech, but probably also maybe some of these integrations.
Not sure is there is there are weighted in the past when we first invest in.
We would see 50% of incremental gross profit dollars fall to EBITDA and so if you were investing in <unk> and obviously business changed a lot.
Because you're investing to scale it much better which we're excited about that.
In the first quarter foreseeing SG&A increased by $500000 or $600000 sequentially should we think that there may not be a five or $600000 sequential increase in <unk>.
Greg Kitt: gross profit to offset that increase in SG&A. I'm trying to, trying to think through this increase in SG&A. Profitability. Yeah, you know, it's hard to talk through.
Gross profit to offset that increase in SG&A I'm, just trying to think through.
Trying to think through this increase in SG&A and the implications to profitability in the first part of the year.
Yeah, you know it is.
Hard to talk through.
Quarter to quarter future, but what we do.
Brett Johnston: Question: Can we expect 50% plus operating leverage going forward? We certainly believe we're in a position to do that now and improve as we roll these new automation platforms into our processes. So again, we're really excited about that operating leverage continuing throughout the year. Okay, thank you. I'll hop off after this last question to give other people some information on how if you had three and a half million dollars of adjusted EBITDA, Recorder, and that included that $1.2 million dollar charge, you would have been more likely. I think the release said four.
You asked a question can we expect 50% plus operating leverage going forward.
We certainly believe we're in a position to do that now and improve.
As we roll.
These new automation platforms.
Into our into our processes.
Again, we're really excited about that operating leverage continuing throughout the year.
Okay.
Okay. Thank you.
I'll hop off after this last question to give other people a chance.
Yeah.
So ex U.
If you had $3 5 million of adjusted EBITDA for the December quarter, and that included about $1 $2 million charge. So you would've been more like <unk>.
I think the release had four six.
Greg Kitt: Yeah, there's a million adjusted in there. Yeah. And so... So, if SG&A goes up by $600,000 sequentially, should gross profit go up by $1.2 million sequentially so that you're seeing 50% of that incremental gross profit fall through to EBITDA? Or are there investments in the first quarter that are kind of outside of that 50%?
Yes.
And their dock.
Okay.
So.
SG&A goes up by $600000 sequentially should.
Gross profit go up by $1 $2 million sequentially, so that youre seeing 50%.
That incremental gross profit fall through to EBITDA or are there investments in the first quarter that are.
Brett Johnston: That's why it's hard to talk, because there is some other stuff going on. Some investment is going on, but I think it's fair to assume that we'll see, we expect a 50% operating leverage going forward. Okay, okay. Okay, thank you very much. I'll hop back.
Outside of that 50% flow through.
That's why it's hard to talk because there is some other stuff.
Some investments going on but.
It's fair to assume that we will see we expect a 50% operating leverage going forward.
Okay. Okay.
Yes, okay. Thank you very much I'll hop back in the queue, if I have anything else.
Greg Kitt: Thanks. Thanks, Greg. The next question comes from George at www.mkhmanagement.org. Please go ahead.
Thanks, Craig Thanks, Greg.
The next question comes from George Melas of MK H management. Please go ahead.
George Melas: Thank you. Good morning, guys. Yeah, congratulations. Quick question on the sales operation. You mentioned that you hired a director of sales. Was the sales force previously partly responsible for closing the customer, and now they are freed up, and they can focus more on selling and closing? Is that kind of what you said? Yeah, it's kind of a bridge, George.
Thank you good morning.
Hey, George.
Yes.
Congratulations.
Question on the sales operation.
You mentioned that you hired a director of sales operation once the sales force previously currently responsible for ramping up the customer feed up and they can focus more on selling and closing is that kind of what you said.
Yes.
It's kind of a bridge George first of all the salespeople that had a lot more to do than that they know they can focus on sales and closing, but it also.
Ray Hatch: First of all, the salespeople had a lot more to do then. Now they can focus on sales and closing. But it also helps our operations team with implementation be much smoother. I mean, the plans are laid out. He does a great job.
It also helps our operations team with implementation would be much smoother.
I mean, the plans are laid out he does a great job, there's a full matrix of everybody's responsibility the timing on every every little thing implementing of our.
Ray Hatch: There's a full matrix with everybody's responsibility, the timing on every little thing. You know, implementing a large customer is really hard. And there are so many things that can go wrong, George, when you're rolling out a customer with 1,000 or 2,000 locations. And we are so much better prepared to do that, execute on that better than before, and also free up both sides of that equation, sales and operations, to focus more on their core strengths. So it's kind of a bridge-type role that takes away from both sides, so it's very beneficial.
A large customer as is really hard and theres. So many things that can go wrong. George when you are rolling out a customer of 1000 or 2000 locations.
And we were so much for amphenol, a better prepared to do that.
Execute on that better than before and also freeing up both sides of that equation sales and operations to focus more on their core strength.
So it's kind of a bridge type role that takes away from both sides. So it's very beneficial.
George Melas: Great. That's interesting. Thanks. Aaron Aaron, Greg, the $1.7 million in savings related to RWS, what is that, and where does it flow through? What are the components of that? Is it mostly, so is it technology, or is it also some people that were at RWS?
Great. Thank you Jason.
The $1 7 million.
And as you alluded to <unk> what is that.
Thank you.
Once the components.
Mostly also.
Waller to use it.
Some people net.
Yes.
At one point.
Brett Johnston: Yeah, people, George, and there's additional I think we mentioned the comments we expect the technology to continue to give us additional yield, yeah, but we were being clear about the 1.7 that's a hard cost savings that's purely, and most of that was baked in already in Q4 as it was partially in place for Q3. Okay, so almost like a quarter of the 1.7 is baked into the December quarter. Yeah, exactly. Yeah. Okay, great. Okay, good. And then, Ray, on the large declines in food distribution, how is that related to COGAMICS? Because COGAMICS is really dealing with food waste, whereas that food distributor... I'm not exactly sure what they do, but they mostly bring goods to the store.
Yeah.
Sure.
Colombia.
While people George.
And there is additional I think I think we mentioned in the comments, we expect the technology to continue to give us additional yield, but we were being clear about the $1 seven thats a hard cost savings thats purely.
While payroll.
And most of that was baked in already in Q4 as it was.
Partially in place for Q3, yes.
Okay.
So all of our second quarter and the ones that baked in into the December quarter.
Yes, exactly yes.
Okay great.
Okay.
One way on the large on the on your large new clients.
<unk> side.
That we made to program the program it seems you're really dealing with food waste through distributor.
I'm not exactly sure what they do but they're mostly blow.
Ray Hatch: So how could that lead to a programmics deal? And maybe also take that opportunity to talk a little bit about the pipeline for programmics, and what that looks like? Yeah, and actually, food distributors do generate quite a bit of organic waste, George. You get into, especially the, I don't want to speak like a food distributor, but the cooler stuff, which is dairy and produce and things like that.
As to the stores, so how could that lead to a program mix.
And maybe.
We also take that opportunity to talk a bit about the pipeline program.
Sure.
And what does that look like.
Yeah.
And actually food distributors do generate quite a bit of organic Weiss George <unk>.
Surprisingly.
You get into you get into especially in it.
To speak like a pure distributor for the cooler stuff, which is <unk>.
Dairy and produce and things like that so there is quite a bit of shrink at the at the distributor D C level as well, but in addition, this company also has retail stores.
Ray Hatch: So there's quite a bit of shrink at the distributor DC level as well. But in addition, this company also has retail stores on top of that. So they're a bit of a hybrid.
On top of that so there are distributed there a bit of a hybrid. So you've also got retail stores involved so it's really a great fit for <unk> in the future.
Ray Hatch: So you've also got retail stores involved. So it's really a great fit for Proganix in the future. We're excited about that. And the pipeline for Proganix has almost completely missed it.
We're excited about that and the pipeline for project organics has elements mispronounces Scott.
Ray Hatch: I'm going through it in my head as I'm talking. There are a couple of really nice grocery store chains that are in that pipeline that we are in active conversations with right now. You know, I think I've mentioned before, Proganix is not an easy sale. It's a good product, but it's... It involves, it's intrusive in a way, it involves operational changes in the client. And anytime you're looking at large stabilized clients and you're asking them to change their operations regardless of how valuable the outcome would be, it slows the process down, as you can imagine. So we all wish it would move faster, but definitely the product, Progenix itself, is compelling.
I am going through it in my head as I'm talking there is theres a couple of really nice.
Grocery store chain stat that are in that pipeline that are in active conversations with right now.
I think I've mentioned before <unk> is not an easy sale, it's a good product, but it's.
It involves it's intrusive in a way it involves operational changes and the client.
And anytime you're looking at large stabilized clients and youre asking them to change their operation regardless of how how valuable the outcome would be.
It slows the process down as you can imagine so.
We always had to move faster, but that but definitely the product <unk> itself.
Is compelling it's more of a how do we get this implemented kind of thing for their clients. So we have an active pipeline and also within our existing clients like the one we mentioned earlier, we hope for that.
Ray Hatch: It's more of a how do we get this implemented kind of thing for the clients. So we have an active pipeline, and also within our existing clients, like the one we mentioned earlier, we hope for that. Okay, great. Okay, thank you very much.
Okay great.
Thank you very much.
George Melas: Thank you, George. The next question comes from Nelson Obus, Field.
Thank you George Thanks, Jordan.
The next question comes from Nelson <unk> of Winfield capital. Please go ahead, yeah, Yeah, I just had an accounting.
Nelson Jay Obus: Yeah, I just had an accounting minutiae, I mean obviously IWS, Difficult Integration. I appreciate you being clear here as to what the problem was, and that it antedated the current. Session 1 Overview Great Hello everybody. I'm Gerard. Get the last thing, GRR! I like solar panels.
Sure I mean, obviously AWS was it.
Difficult integration I appreciate you being clear here as to what the problem was.
And that it and today to the.
The current.
Nelson Jay Obus: ...
Nelson Jay Obus: never asking for more than what we do. I really notice this year's academic year for data. You have an adjusted number of 3.5 million, just from an accounting perspective. There are problems with that $1.2 million. The way it reads here, it's an adjustment to an adjustment. I guess the question for Brett is, why wouldn't you immediately make it $4.6 million and just point out that there was an RWS issue there? Is there something in the accounting realm?
The current fiscal year.
You have an adjusted number of $3 5 million just wanted accounting perspective.
Is there a problem.
With a $1 2 million in the way it reads here as an adjustment to an adjustment.
I guess a question for Brett why wouldn't you immediately make it $4 6 million and just point out that there is an <unk> issue or is there something in the accounting realm that.
Brett Johnston: makes it difficult to do that. Yeah, Nelson, I mean, it was a missed expense in prior periods. So when I think about add-backs, you know, one is kind of non-cash, but then it can can be a piece of that. But, but because it was a missed expense in prior periods, we just didn't feel like it was appropriate to fully add it back.
It makes it difficult to do that.
Yes, Nelson I mean it is.
It was Mister expense in prior periods. So when I think about add backs one is kind of noncash, but then.
It can be a piece of that but but because it was missed expense in prior periods. We just didnt feel like it was appropriate to fully add it back.
Brett Johnston: Okay, but anyway, it's behind us now. That's for sure. Right. And my other question, simply, i.e., as you pointed out very clearly if you look at uh... uh... if you look at the debt, it's going up exactly uh... you know as much as accounts receivable and uh... that's because your d l s slow pay and all that other issue. My question is, do you think you'll have that cleared up We've been, we've been focused, even, you know, just as an anecdote, one customer paid on January 2, instead of December 31. So that's why we, you know, those are the timing issues.
Okay, Great anyway, it's behind US now that's for sure right.
And my other question.
I mean, obviously you look at the.
As you pointed out very clearly if you look at.
If you look at the debt.
It's gone up exactly.
As accounts receivable and that's because youre dose with slow slow pay and all that other issue. My question is do you think you'll have that cleared up in Q1 and get the das back down into the low sixties as opposed to 75, where we are now.
Absolutely now some we've been we've been focus even.
Just as a anecdote one customer paid on January 2nd instead of December 31. So.
That's why we those are the timing issues.
Brett Johnston: The team's very focused. I'm excited about the energy I've seen on the collection side, and I feel really confident about how we're going to end the quarter. Great. Okay.
The team's very focused I'm excited about.
Energy I've seen on the collection side and I feel really confident in how we're going to end the quarter.
Great. Okay. Thanks, guys.
Nelson Jay Obus: Thanks, guys. Thanks, Nelson. This concludes the question and answer session. I would like to turn the conference back over to Ray Hatch for any, Thank you, operator. I appreciate that. And I appreciate all of you.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Ray hatch for any closing remarks.
Thank you operator.
I appreciate that and I appreciate all of you I want to reiterate our positive outlook.
Ray Hatch: I want to reiterate our positive outlook. We're really excited about new customers coming on to Quest, and we're also extremely excited about our existing customers re-signing with us and extending. I think that's a real commentary on the work this team does to keep these clients happy. I'm so excited about that.
We're really excited about.
About new customers coming on to quest and we're also extremely excited about.
Our existing customers re upping, whether it's in extending I think thats a real comment commentary on the on the work. This team does to keep these clients happy I'm. So excited about that.
Ray Hatch: I do want to thank that team for all the effort and the value that they're bringing. You know, we have a lot of initiatives, and this team has been working really hard over the last year or so, and they're really starting to bear fruit. It's exciting for me to watch that happening, and I couldn't be more proud of these guys having long-term vision, staying focused on execution, and seeing these things come to fruition.
I do want to thank that team for all the efforts and the value that they are bringing.
We have a lot of initiatives and this team has been working really hard over the last year or so.
And they are really starting to reach fruition is exciting for me to watch that happening and I couldnt be more proud of these guys.
Having long term vision staying focused on execution.
Sandy as things come to fruition. So we're looking forward to keeping you updated on quarters to come and lastly, I want to thank all of you for your continued support of quest and we're excited about telling you about future things. So that's it thank you very much.
Operator: So, we're looking forward to keeping you updated on the quarters to come. And lastly, I want to thank all of you for your continued support of Quest, and we're excited about telling you about future things. So, that's it. Thank you very much. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Sure.
Sure.