Q1 2024 Quest Resource Holding Corp Earnings Call

Operator: Please stand by; your program is about to begin. If you require audio assistance during today's call, please press star and zero. Good day, everyone, and welcome to the Quest Resource Holding Corp. first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star and one on your telephone keypad. Please note, today's call will be recorded, and we will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Dave Mossberg, Investor Relations.

Please standby your program is about to begin to require audio assistance during todays call. Please press star and zero.

Operator: [music].

Dave Mossberg: Good day, everyone and welcome to the Quest resource holding Corp, first quarter 2024 earnings call.

Dave Mossberg: This time all participants are in a listen only mode. Later, you'll have the opportunity to ask questions. During the question and answer session. You May Register to ask a question at any time by pressing star one on your telephone keypad.

Operator: Please note today's call will be recorded and we will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Dave Mossberg Investor Relations.

David M. Mossberg: Thank you, David, and thank you, everyone, for joining us on the call. Before we begin, I'd like to remind everyone that this call may contain predictions, estimates, and other forward-looking statements regarding future events and future performance of Quest. The use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on Quest's current expectations, estimates, projections, beliefs, and assumptions and involve certain significant risks and uncertainties.

Dave Mossberg: Thank you David and thank you everyone for joining us on the call before we begin I'd like to remind everyone that this call may contain predictions estimates and other forward looking statements regarding future events and future performance of quest.

David M. Mossberg: 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. 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.

David M. Mossberg: In addition, in this call, we may include industry and market data and other statistical information as well as Quest observations about industry conditions and development. 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 information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information.

David M. Mossberg: Use of words like anticipate project estimate expect intend believe and other similar expressions are intended to identify those forward looking statements.

David M. Mossberg: Such forward looking statements are based on quests current expectations estimates projections and assumptions and involve certain 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 in <unk> filings with the Securities and Exchange Commission.

David M. Mossberg: 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.

David M. Mossberg: In addition in this call. We may include industry and market data and other statistical information as well as quests observations.

David M. Mossberg: Industry conditions and developments the data and information are based on question estimates independent publications government publications and reports by market research firms and other sources.

David M. Mossberg: Quest believes these sources are reliable and the data and information are accurate, we caution that quest has not independently verified the reliability of the sources or the accuracy of the information certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions forecast future results and evaluate the company.

David M. Mossberg: Certain non-gap financial measures will be discussed during this call. These non-gap 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 and assessment of 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-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.

Ray Hatch: Current performance.

Ray Hatch: Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future.

Ray Hatch: Unless stated otherwise stated it should be assumed that any financials discussed in this call will be on a non-GAAP basis full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release.

David M. Mossberg: With all that said I will now turn the call over to Ray Hatch, President and Chief Executive Officer.

David M. Mossberg: Yeah.

Ray Hatch: Thank you, Dave, and thank you for joining us on today's call. We have strong momentum across our business to start the year. One area to highlight is organic growth of new clients. We previously discussed six new client wins last quarter and one large new win early in the second. To put those achievements in perspective, in the past couple of years, we've been averaging approximately one new client win per quarter.

Ray Hatch: Thank you, Dave and thank you for joining us on today's call.

Ray Hatch: We have strong momentum across our business to start to hear one area to highlight is the organic growth of new clients.

Ray Hatch: Previously discussed six new client wins last quarter and one large new win early in the second.

Ray Hatch: Those achievements in perspective in the past couple of years, we've been averaging approximately one new client win per quarter.

Ray Hatch: We also have strong momentum with our existing client base. I'll talk about this a bit later, but to summarize, we are seeing strong growth with our existing client base and continue to uncover significant opportunities to expand services even further. We're also having success adding new end markets, having added two in the past couple of quarters. These areas have significant growth potential, and we're well positioned to add additional new clients in these markets, as well as new service lines where there is a crossover of services within our existing client base.

Ray Hatch: We also have strong momentum with our existing client base I'll talk about this a bit later, but to summarize we are seeing strong growth within our existing client base.

Ray Hatch: And continued uncovered significant opportunities to expand services even further.

Ray Hatch: We're also having success, adding new end markets, having added to in the past couple of quarters.

Ray Hatch: These areas have significant growth potential and we're well positioned to add additional new clients in these markets.

Ray Hatch: As well as new service lines, where there is a crossover of services within our existing client base.

Ray Hatch: I will also note that our pipeline of opportunities with new and existing clients has grown, and momentum appears to be durable, which bodes well for the next few years. The size of the momentum seen during the first quarter, we began to see the benefits from the investments we've made and continue to make in the scalability and efficiency of our technology platform and Process Improvements, Increasing Operating Efficiency. This is showing up in a number of ways.

Ray Hatch: I will also note that our pipeline of opportunities with new and existing clients as ground.

Ray Hatch: Our momentum appears to be durable, which bodes well for the next few years.

Ray Hatch: Size momentum seen during the first quarter, we began to see the benefits from the investments we've made and continue to make in scalability and efficiency of our technology platform and.

Ray Hatch: And process improvements increasing operating efficiencies.

Ray Hatch: This is showing up in a number of ways.

Ray Hatch: The first is the accelerated pace of adding new business from both existing and new clients through our ability to quote more accurately, more completely, and more timely. The second is the increased efficiency with which we are operating waste programs. We're driving costs down, which benefits our customers and our vendor partners, as well as our own business in the form of lower costs of sales. And third, platform investments and process improvements are beginning to deliver operating leverage so that we can significantly scale the business without a correlated increase in overhead costs.

Ray Hatch: First is the accelerated pace of adding new business from both existing and new clients through our ability to quote more accurately more completely and more timely.

Ray Hatch: Second is the increased efficiency in which we are operating waste programs, we're driving costs down which benefits our customers and our vendor partners as well as our own business in the form of lower cost of sales.

Ray Hatch: And third platform investments and process improvements are beginning to deliver operating leverage so that we can significantly scale the business without a correlated increase in overhead costs. For example, during the first quarter. We grew EBITDA at more than twice the pace of gross profit dollars, we expect to demonstrate more and more of that operating a rally.

Ray Hatch: For example, during the first quarter, we grew EBITDA at more than twice the pace of gross profit dollars. We expect to demonstrate more and more of that operating leverage in the coming quarters. I'll now turn the call over to our CFO, Brett Johnston.

Brett W. Johnston: Our leverage in the coming quarters.

Brett W. Johnston: Now I'll turn the call over to our CFO Brad Johnston.

Brett W. Johnston: Thanks, Ray, and good afternoon, everyone. We had strong first quarter results with double-digit growth in gross profit dollars and demonstrated operating leverage with the bottom line, growing at an even faster pace. Revenue was $72.7 million versus $74.1 million a year ago, which is a 2% decrease year over year and a 5% increase sequentially from the fourth quarter. The year-over-year decrease was primarily related to a customer that had been acquired during the third quarter of 2023.

Brett W. Johnston: Thanks, Ray and good afternoon, everyone.

Brett W. Johnston: We had strong first quarter results with double digit growth in gross profit dollars and demonstrated operating leverage with the bottom line.

Brett W. Johnston: Growing at an even faster pace.

Brett W. Johnston: Revenue was $72 7 million versus $74 1 million a year ago, which is a 2% decrease year over year, and a 5% increase sequentially from the fourth quarter.

Brett W. Johnston: The year over year decrease was primarily related to a customer that had been acquired during the third quarter of 2023.

Brett W. Johnston: As we discussed in our previous quarterly calls, the company that acquired this client manages waste disposal internally and decided to manage our client in the same way. In addition, we had lower activity levels on a couple of accounts.

Brett W. Johnston: As we discussed in our previous quarterly calls the company that acquired this client managers waste disposal internally and decided to manage our client in the same way.

Brett W. Johnston: In addition, we had lower activity levels with a couple of accounts on average. These accounts typically have produced lower overall margins the year over year comparison was partially offset by growth from existing and new customers with more attractive gross margin profiles.

Brett W. Johnston: On average, these accounts typically produce lower overall margins. However, the year-over-year comparison was partially offset by growth from existing and new customers with more attractive gross margin profiles. I will note that we began onboarding most of the new client WINS on April 1st, so new client WINS secured during the first quarter did not affect first quarter revenue comparisons. During the first quarter, gross profit dollars were $14 million, an increase of 11.1% versus last year. Almost all of this increase came from program optimization and expanding business with our existing clients.

Brett W. Johnston: I will note that we began on boarding most of the new client wins on April 1st So new client wins secured during the first quarter did not affect first quarter revenue comparisons.

Brett W. Johnston: During the first quarter gross profit dollars were 14 million an increase of 11, 1% versus last year almost.

Brett W. Johnston: Almost all of this increase came from program optimization and expanding business with our existing clients.

Brett W. Johnston: Looking at gross profit dollars for the second quarter and the remainder of 2024, we are encouraged by the record number of new customer wins Ray mentioned earlier. We expect sequential growth in gross profit dollars during the second quarter and anticipate that new client wins and growth with existing clients will increasingly add to our year-over-year gross profit dollar growth throughout the course of the year. Moving on to SG&A, which was $9.8 million during the fourth quarter, up approximately $400,000 from the same period last year and in line with our expectations.

Brett W. Johnston: Looking at gross profit dollars for the second quarter and the remainder of 'twenty 'twenty. Four we are encouraged by the record number of new customer wins Ray mentioned earlier, we expect sequential growth in gross profit dollars during the second quarter and anticipate that new client wins and growth with existing clients will increasingly add to our year over year.

Brett W. Johnston: Gross profit dollar growth throughout the course of the year.

Brett W. Johnston: Moving on to SG&A, which was $9 8 million during the fourth quarter up approximately 400000 from the same period last year and in line with our expectations.

Brett W. Johnston: Looking forward, we expect lower integration costs and to gain efficiencies from the investments we have made in our platform and through process improvement. We expect the savings from efficiency gains to be partially offset by continued investment in growth and other initiatives.

Brett W. Johnston: Looking forward, we expect lower integration costs and to gain efficiencies from the investments we made in our platform and through process improvements.

Brett W. Johnston: We expect the savings from efficiency gains to be partially offset by continued investment in growth and other initiatives and we expect SG&A will grow at a slower pace than gross profit dollars.

Brett W. Johnston: And we expect SG&A to grow at a slower pace than gross profit dollars. As a result, we expect SG&A to be about $10 million in the second quarter. Moving on to a review of the cash flows and balance sheet, our liquidity is in good shape, and we've increased our borrowing capacity and availability. On April 1st, we announced that we had extended the maturities on our debt with Monroe until October of 2026 and extended the maturity of our credit line with PNC until April of 2026, which gives us added runway to continue our process of evaluating alternative long-term debt financing structures that will help us lower borrowing costs and preserve the ability to maximize growth.

Brett W. Johnston: As a risk as a result, we expect SG&A will be about $10 million in the second quarter.

Brett W. Johnston: Moving on to a review of the cash flows and balance sheet.

Brett W. Johnston: Our liquidity is in good shape, and we've increased our borrowing capacity and availability.

Brett W. Johnston: On April 1st we announced that we had extended the maturities on our debt with Monroe until October of 2026 and extended the maturity of our credit line with PNC until April of 2026, which gives US added runway to continue our process of evaluating alternative long term debt financing structures.

Brett W. Johnston: That will help us lower borrowing costs and preserve the ability to maximize growth.

Brett W. Johnston: Based on the momentum we have had to date and how we expect to finish this year, we expect to attract lenders with competitive pricing and attractive terms. We are already hearing from prospective lenders and advisors that lenders are more willing to sacrifice margin to submit more competitively priced lending options.

Brett W. Johnston: Based on the momentum we have had to date and how we expect to finish this year, we expect to attract lenders with competitive pricing and attractive terms.

Brett W. Johnston: We are already hearing from prospective lenders and advisors that lenders are more willing to sacrifice margin to submit.

Brett W. Johnston: More competitively priced lending options.

Brett W. Johnston: Regarding the increase in our borrowing capacity, we also announced that we had increased the size of the borrowing line with PNC to $35 million from $25 million and added an incremental equipment term loan facility to finance up to $5 million of equipment purchases. At the end of the quarter, we had $17.5 million drawn on our $35 million operating borrowing line and nothing drawn on the $5 million term loan facility. This compares to $13.2 million drawn on our line with PNC at the beginning of the year. In this 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.

Brett W. Johnston: Regarding the increase in our borrowing capacity, we also announced that we have increased the size of the borrowing line with PNC to 35 million from $25 million and added an incremental equipment term loan facility to finance up to $5 million of equipment purchases.

Brett W. Johnston: At the end of the quarter, we had $17 5 million drawn on our $35 million operating borrowing line and nothing drawn on our 5 million term loan facility. This compares to $13 2 million drawn on our line with P&C at the beginning of the year.

Brett W. Johnston: And this interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management.

Brett W. Johnston: Carrying less cash and minimizing borrowings on our line of credit.

Brett W. Johnston: Thus, our cash balance was $581,000 at the end of the first quarter. For the quarter, we used $1.7 million to fund operations, which included a $1 million acquisition-related earn-out payment. This was the final payment in that transaction.

Brett W. Johnston: Thus our cash balance was 581000 at the end of the first quarter.

Brett W. Johnston: For the quarter, we used $1 7 million to fund operations, which included a 1 million dollar acquisition related earn out payment.

Brett W. Johnston: This was the final payment of that transaction at.

Brett W. Johnston: At the end of the quarter, receivables remained elevated from our average range with DSOs at 75 days. During the quarter, we partially resolved flow payments from several of our largest customers that we described on last quarter's call. Also, I am happy with the continued progress made subsequent to the end of the quarter and expect to return to more normalized levels in the mid-60s by the end of the second quarter. I will note that the increased DSOs are temporary.

Brett W. Johnston: At the end of the quarter receivables remained elevated from our average range with Dsos at 75 days during the quarter, we partially resolved slow payments from several several of our largest customers that we described on last quarter's call.

Brett W. Johnston: Also I am happy with the continued progress made subsequent to the end of the quarter and expect to return to more normalized levels in the mid <unk> by the end of the second quarter.

Brett W. Johnston: I will note that the increase Dsos are temporary we have great relationships with these customers and slower than expected payments is not not related to collectability.

Brett W. Johnston: We have great relationships with these customers, and slower than expected payments are not related to collectability, also in the future due to the timing of onboarding new large clients. It is possible that we will see fluctuations in DSOs from quarter to quarter.

Brett W. Johnston: Also in the future due to the timing of on boarding new large clients.

Brett W. Johnston: It is possible that we will see fluctuations in the dsos from quarter to quarter.

Ray Hatch: Capital expenditures for the quarter were $1.9 million, which is more than we normally spend during any given quarter. $1.6 million of the capital expenditures were related to the compactors that we were able to opportunistically purchase at an attractive price. Subsequent to the end of the first quarter, we have spent another $1.5 million adding additional compactors as part of this purchase. We will opportunistically be looking for other compactors but do not anticipate significant spending in the next few quarters unless we run across another attractive opportunity.

Brett W. Johnston: Capex for the quarter was $1 9 million, which is more than we normally spend during any given quarter.

Ray Hatch: $1 6 million of the Capex was related to the comp factors. So we were able to opportunistically purchase at an attractive price.

Ray Hatch: Subsequent to the end of the first quarter. We have spent another $1 5 million, adding additional comp factors as part of this purchase.

Ray Hatch: We will opportunistically you'd be looking for other compactor, but do not anticipate significant spending in the next quarter next few quarters, unless we run across another attractive opportunity.

Ray Hatch: Ray will cover the rationale for this in his remarks, but in summary, it made more sense to own these compactors instead of renting them, both from a financial and strategic perspective. At the end of the quarter, we had $71.8 million in notes payable versus $67.8 million at the beginning of the year. The increase primarily reflects growth in borrowing on our line with PNC to fund working capital and the assets purchased that I described earlier. At this time, I'll turn the call back to Ray.

Ray Hatch: Ray will cover the rationale for this in his remarks, but in summary, it made more sense to own. These compactor instead of renting them, both from a financial and strategic perspective.

Ray Hatch: At the end of the quarter, we had $71 8 million in notes payable versus 67 8 million at the beginning of the year.

Ray Hatch: The increase primarily relates reflects that growth in borrowing on our line with PNC to fund working capital and the asset purchase that I described earlier.

Ray Hatch: At this time I'll turn the call back to Ray.

Ray Hatch: Thank you Brett we.

Ray Hatch: Thank you, Brett. We had a strong start to the year with solid financial performance in Q1 and a significant increase in adding business from both new and existing clients. We have also begun to see some benefits from the investments we have been making in our technology platform and process improvement. I'll start off by covering a new client. We are seeing the results of the hard work of our team over the last two years to develop our go-to market sales effort.

Ray Hatch: We had a strong start to the year with solid financial performance in Q1 and significant ramp in adding business from both new and existing clients.

Ray Hatch: We also began to see some benefits from the investments we've made there.

Ray Hatch: <unk> been making in our technology platform and process improvements.

Ray Hatch: I'll start off by covering new client wins we.

Ray Hatch: We are seeing the results of the hard work of our team over the last two years to develop our go to market sales efforts, we covered a lot of detail with six new business wins during our last earnings call. So I won't go into a lot more detail covering those however, I will tell you that we began to onboard most of these new client wins in the beginning of the second quarter and expect to see a nice set of <unk>.

Ray Hatch: We covered a lot of detail with the six new business wins during our last earnings call, so I won't go into a lot more detail on those. However, I will tell you that we began to onboard most of these new client wins at the beginning of the second quarter and expect to see a nice step up in sequential gross profit dollar growth. I will also give you a little more color on the win we secured early in the second quarter.

Ray Hatch: Up in sequential gross profit dollar growth.

Ray Hatch: I will also give you a little more color on the win we secured early in the second quarter. We referred to this new client win in our press release in late April when we announced the date when we announced today for our earnings call.

Ray Hatch: We referred to this new client win in a press release in late April when we announced the date for our earnings call. This is a market leader in the grocery sector and is expected to produce eight figures in annual revenue and offer incremental growth opportunities. We won the client in a competitive process, and we were chosen based on our reputation, cost effectiveness, customer alignment with sustainability goals, and the ability for us to provide added visibility from our data portal and platform.

Ray Hatch: This is a market later in the grocery sector and is expected to produce eight figures in annual revenue and offer incremental growth opportunities. We want the client in a competitive process and we were chosen based on our reputation cost effectiveness customer alignment with sustainability goals and the ability for us to provide added visibility from our <unk>.

Ray Hatch: Data <unk> and platform and.

Ray Hatch: In addition to closing several deals in recent months, we've continued to see a noticeable uptick in not only the number but also the size of opportunities in our pipeline. Given the success we are having with new client wins, we plan to accelerate our investment in organic growth initiatives, including investments in marketing and sales during 2024, reinvesting some of the profit gains generated in the business. I want to comment on the growth from existing clients.

Ray Hatch: In addition to closing several deals in recent months, we've continued to see a noticeable uptick in not only number but also the size of opportunities in our pipeline.

Ray Hatch: Given the success, we are having with new client wins, we plan to accelerate our investment in organic growth initiatives, including investments in marketing and sales during 2020 for reinvesting some of the profit gains generated in the business.

Ray Hatch: I want to comment on the growth from existing clients we.

Ray Hatch: We have long said there is a great deal of opportunity with our existing client base, and that is still very much the case. We've done a good job over the last several years of adding new business with existing clients, which has been a stable source of growth for our company. However, I believe we're just beginning to scratch the surface of what we can do for our existing clients.

Ray Hatch: We have long said theres, a great deal of opportunity with our existing client base and that is still very much. The case, we've done a good job over the last several years of adding new business with existing clients, which has been a stable source of growth for our company.

Ray Hatch: However, I believe we're just beginning to scratch the surface of what we can do for our existing clients. During the last several quarters have been demonstrated our capabilities several of our largest clients are.

Ray Hatch: During the last several quarters, we've demonstrated our capabilities to several of our largest customers, and they are coming to us and asking us to do more. They have seen the value of our platform and give the corporate level not only greater visibility into their spend at the local level but also auditable data that allows them to confirm that waste is being handled according to local, regional, and national regulations, as well as their own corporate level specifications.

Ray Hatch: We are coming to us and asking us to do more <unk>.

Ray Hatch: Then they have seen the value of our platform and get the corporate corporate level, not only greater visibility into their spend at the local level, but also auditable data.

Ray Hatch: That allows them to confirm that waste is being handled according to local regional and national regulations as well as their own corporate level specifications.

Ray Hatch: It's very rewarding that customers are coming to us and asking for solutions, and it shows how well we are regarded. As a result of this interest, we plan to take a more proactive approach to working directly with our clients. We are creating dedicated project teams to work with our larger clients to identify issues and help them understand how we can help. For example, we have been working with a large customer and uncovered more than 50 potential projects where we can help them improve waste management. There are large and small projects that range from tens of thousands of dollars to eight figures, and almost all of these projects have recurring waste management services once the initial projects are completed.

Ray Hatch: It's very rewarding that customers are coming to us and asking for solutions and it shows how well we are regarded as a result of this interest we plan to take a more proactive approach to working directly with our clients. We are creating dedicated project teams to work with our larger clients to identify issues and help them understand how we can help.

Ray Hatch: For example, we have been working with a large customer and uncovered more than 50 potential projects, where we can help them improve waste management.

Ray Hatch: There are large and small projects that range from the tens of thousands of dollars to the 8% to eight figures and almost all of these projects have recurring waste management services. Once the initial projects are completed.

Ray Hatch: Now I want to cover the rationale behind investing in compactors that Brett mentioned in his remarks. I don't want anyone to take away from this commentary that we're changing our business model. We very much remain primarily an asset-light business. We don't plan on owning trucks, landfills, or similar hard assets. Compactors are a highly complementary business and a very important part of the service offering in a number of sectors like retail and real estate.

Ray Hatch: Now I want to cover the rationale behind investing in compactor that Brett mentioned in his remarks.

Ray Hatch: I don't want anyone to take away from this commentary that we're changing our business model we have.

Ray Hatch: Very much remain primarily an asset light business, we don't plan on owning trucks landfills or similar hard assets <unk>.

Ray Hatch: <unk> are highly adjacent business and a very important part of the service offering and a number of sectors like retail and real estate.

Ray Hatch: They offer significant complementary economics, and we're not competing with our vendor partners by owning Compact. We will look at increasing the number of compactors that we own when it makes sense. In fact, prior to this recent purchase, we already owned about 200 compactors, and we regularly buy them in lower quantities to meet customer needs. Once in place at a customer location, compactors are seldom moved, they require limited maintenance, and their utilization is typically in the high 90% range.

Ray Hatch: They offer significant complementary economics, and we're not competing with our vendor partners by one <unk>.

Ray Hatch: We were looking at increasing the number of <unk> that we own when it makes sense in fact prior to this recent purchase we already owned about 200, Compactors and win rate, we regularly by them and lower quantities to meet customer needs. Once in place at a customer location comp packages are seldom moved they require a limited maintenance and their.

Ray Hatch: <unk> is typically in the high 90% range <unk> produced an attractive recurring revenue stream with attractive margin and a high return on capital.

Ray Hatch: Compactors produce an attractive recurring revenue stream with attractive margins and a high return on capital. In addition to attractive financial metrics, they help us create more lasting relationships with clients. As part of this opportunistic purchase for approximately $3.1 million, we added about 200 compactors that were already under existing contracts. As Brett said, $1.6 million was paid in the first quarter and $1.5 million in the second quarter.

Ray Hatch: In addition to attractive financial metrics to help us create more lasting relationships with clients.

Ray Hatch: As part of this opportunistic purchase for approximately $3 1 million, we added about 200 <unk> they were already under existing contracts.

Ray Hatch: As Brad said $1 6 million was paid in the first quarter and $1 5 million in the second quarter with this transaction, we doubled the size of our fleet.

Ray Hatch: With this transaction, we doubled the size of our fleet, and Gain Scale that makes this a much more attractive business, all without having to add more GNS. Now, I will reveal the estimates 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 technology platform has been a key deciding factor for several competitive wins and has helped us maintain enduring client relationships due to the incremental value we provide.

Ray Hatch: And gain scale that makes this a much more attractive business all without having to add more G&A.

Ray Hatch: Now I'll reveal the estimates 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.

Ray Hatch: The technology platform has been a key deciding factor for several competitive wins and has helped us maintain enduring client relationships due to the incremental value we provide.

Ray Hatch: We are actively introducing additional technology improvements in 2024. In past calls, we discussed a vendor sourcing tool that is helping us to accelerate our quoting and onboarding processes. More recently, we have begun rolling out an AP automation solution that utilizes artificial intelligence to further automate the processing of vendor invoices. As of today, approximately half our invoices are being processed through our new AP automation platform, half of which require no human interaction, or what we call zero touch.

Ray Hatch: We are actively introducing additional technology improvements in 2024 in past calls we've discussed to vendor sourcing tool, which is helping us to accelerate our quoting and onboarding processes. More recently, we have begun rolling out an AP automation solution that utilizes artificial intelligence to further automate the processing of vendor invoices.

Ray Hatch: As of today approximately half our invoices are being processed through our new AP automation platform half of which required no human interaction.

Ray Hatch: What we call zero touch we provide hundreds of thousand process hundreds of thousands of invoices every year and this is part of our goal to reach the 100% zero touch invoice processing.

Ray Hatch: We provide hundreds of thousands of invoices every year, and this is part of our goal to reach the 100% zero-touch invoice process. Automating invoice processing helps us ensure payments are made for services delivered and helps us eliminate exceptions. Exceptions require manpower to resolve and can cause delays, which in some cases can degrade customer service levels and vendor relationships.

Ray Hatch: Automating invoice processing helps us ensure payments are made for services delivered and helped us eliminate exceptions.

Ray Hatch: Exceptions require manpower to resolving and can cause delays, which in some cases can do great customer service levels and vendor relationships.

Ray Hatch: By automating invoice processing along with other technological enhancements, we are lowering costs, continuously improving client and vendor value, providing major enhancements to our ability to scale, and Expanding Our March. Regarding our outlook, I want to emphasize my conviction in our trajectory and the overall outlook for the company in 2024 and beyond. We have made tremendous progress during the last several years and have never been more confident in our outlook for continued double-digit growth.

Ray Hatch: By automating invoice processing, along with other technology enhancements, we are lowering cost continuously improving client and vendor value, providing major enhancements to our ability to scale.

Ray Hatch: And expanding our margins rigs.

Ray Hatch: Regarding our outlook I want to emphasize my conviction on our trajectory and the overall outlook for the company in 2024 and beyond.

Ray Hatch: We have made tremendous progress during the last several years and.

Ray Hatch: And have never been more confident in our outlook for continued double digit growth.

Ray Hatch: I feel very good about the organic growth that we have in front of us. Pressure to improve sustainability, expanding regulation, and increasing costs of landfills all continue to lower the bar for the adoption of recycling services.

Ray Hatch: I feel very good about organic growth that we have in front of us pressure to improve sustainability expanding regulation increasing cost of landfills. They all continue to lower the bar for the adoption of recycling services.

Ray Hatch: We have multiple sources of organic growth, from expanding with our existing clients to ramping up recent wins and a growing pipeline of new business. I want to reiterate that we have a large opportunity to drive 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 cost of service through vendor relations and procurement management that drives our continued growth in gross profit dollars.

Ray Hatch: We have multiple sources of organic growth from expanding with our existing clients to ramping up recent wins and a growing pipeline of new business.

Ray Hatch: I want to reiterate that we have a large opportunity to drive gross profit dollar growth on the cost side by optimizing the business we have in hand as.

Ray Hatch: As we bring revenue onto our platform, we've proven our ability to optimize cost of service through vendor relations and procurement management that drives our continued growth in gross profit dollars.

Ray Hatch: In the same way, we have multiple ways of improving efficiency by utilizing the technology investments we've made over the last several years, driving improved operating performance and expanding EBITDA margins. The work we have 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, and I couldn't be more excited about what's to come. I look forward to keeping you updated on our progress. Now, we'd like the operator to provide instructions on how listeners can queue up for questions. Operator. Absolutely not at this time.

Ray Hatch: And the same way, we have multiple ways of improving efficiency by utilizing the technology investments. We've made over the last several years driving improved operating performance and expanding EBITDA margins.

Ray Hatch: We have done is centered on building, a consistent and sustainable business focused on providing valued service to our clients. They.

Ray Hatch: The Foundation is set continue for continued success and.

Ray Hatch: And to build value for our shareholders.

Ray Hatch: We expect our momentum to carry through this year and beyond and 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.

Operator: At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing the pound key. Once again, to ask a question today, please press the star and 1 key. And we'll take our first question from Aaron Spychalla with Craig Hollum. Please go ahead, your line is open.

Speaker Change: Absolutely at this time, if you'd like to ask a question. Please press the star and one key on your telephone keypad keep in mind, you may remove yourself from the question queue at any time by pressing the pound key.

Operator: Again to ask a question today, Please press the star and one kings.

Aaron Michael Spychalla: And we'll take our first question from Aaron <unk> with Craig Hallum. Please go ahead. Your line is open.

Aaron Michael Spychalla: Yeah, good afternoon Ray and Brett. Thanks for taking the questions. Maybe first, you know, on the rollout of the process improvements and technology improvements, you know, are those largely all in place now? Just trying to get a sense of the really nice progress we've seen on new customers, but it also seems like we might be, you know, still in the early innings of really having sales focus on hunting and closing and kind of seeing that flywheel effect of just more wins leading to more volumes and helping you kind of reduce costs there So if you could just elaborate on that a little bit, that'd be great.

Aaron Michael Spychalla: Yeah, Good afternoon rain, Brett thanks for taking the questions.

Aaron Michael Spychalla: Maybe first on.

Aaron Michael Spychalla: On the on the rollout of the process improvements and technology improvements.

Aaron Michael Spychalla: Are those largely all in place now are just trying to get a sense of the really nice progress we've seen on new customers, but it also seems like we might be still in the early innings of really having sales focus on hunting and closing and kind of seeing that flywheel effect of just more wins, leading to more volumes in helping you kind of reduce cost there.

Aaron Michael Spychalla: And then further yeah, maybe close on that pipeline too. So if you could just elaborate on that a little bit that'd be great.

Brett W. Johnston: Hey Aaron, this is Brett. I'll take that piece. You know, we've certainly made a lot of improvements and a lot of progress on the many different initiatives we have across the different departments in our organization. As you mentioned, I think the most impactful to date have been more on the operational side as it's allowed us to procure a little bit quicker and maybe expedite the sales process a little bit more and given us some efficiencies there.

Brett W. Johnston: Hey Aaron, this is Brett.

Aaron Michael Spychalla: Hey, Aaron this is Brett I'll take that piece.

Brett W. Johnston: Certainly made a lot of improvements.

Brett W. Johnston: And a lot of progress on many different initiatives, we have across the different departments in our organization. As you mentioned I think the most impactful to date have been more on the operational side as it has allowed us to procure a little bit quicker and.

Brett W. Johnston: And maybe expedite the sales process, a little bit more and given us some efficiencies there.

Brett W. Johnston: In terms of administrative, we've made some progress, but as Ray mentioned, we're only about halfway there on terms of the AP processing automation that I think is going to be one of the bigger impactful rollouts that we do. So, we're about halfway there, and of about the half, you know, 50% of invoices we have going through there, we're only at about 40 to 50% optimization. We've got really good runway to about 80% in the near term.

Brett W. Johnston: In terms of administrative we've made some progress but as Ray mentioned, we're only about halfway there on terms of the AP processing.

Brett W. Johnston: Automation that I think.

Brett W. Johnston: It's going to be one of the bigger impactful.

Brett W. Johnston: Rollouts that we do so we're about halfway there and of about half 50% of invoices, we have going through there we're only at about 40% to 50%.

Brett W. Johnston: The last 20% of zero touch will be a little bit harder, but you'll see that as we get through the back half of the year. So, we're taking a very deliberate approach to this, making sure we're not trying to take on too much and overload the system and the groups. So, a lot of work there. We did talk that SG&A would be up a little bit in Q2. So, to that end, you know, Q3, Q4 is where we'll start seeing the impacts of that. We'll get to a critical mass in the back half of the year where we're able to demonstrate much better operating leverage, and you'll be able to see that number.

Brett W. Johnston: The optimization, we've got really good runway to about 80% are near term in the last 20% of zero touch will be a little bit harder but.

Brett W. Johnston: Youll see that as we get through the back half of the year. So we've taken a very deliberate approach to this making sure.

Brett W. Johnston: We're not trying to take on too much and overload overload the system and the groups.

Brett W. Johnston: So a lot of work there we did talk that SG&A will be up a little bit.

Brett W. Johnston: In Q2.

Brett W. Johnston: So to that Q3 Q4 as well we will start seeing the impacts of all of that will get passed we will get to a critical mass in the back half of the year, where we're able to demonstrate much better operating leverage and you'll be able to see that numbers.

Ray Hatch: Alright, thanks for that. And then, you know, maybe second, you talked a little bit, but could you maybe expand a little bit on the kind of land and expansion strategy with the existing clients? You know, maybe touch on some of the services that you're seeing there. And then any way to quantify, you know, whether dollars or kind of percentage, just kind of the potential for growth that you see from that?

Speaker Change: Alright, Thanks for that and then maybe second you talked a little bit, but could you maybe expand a little bit on the kind of land and expand strategy with with the existing clients maybe.

Ray Hatch: Maybe touch on some of the services that Youre seeing there and then any any way to quantify whether dollars or kind of percentage I'm just kind of the potential for growth that you see from that.

Ray Hatch: I'll speak to the land. Thanks for your question, Aaron. The land and expand story really isn't any different than it has been. It's just continued to grow and accelerate. I think that's natural considering the clients we've added. We have more clients to expand with, I guess. So we've added what the clients need basically. Quest, at its core, its DNA is that we're a problem-solving company.

Speaker Change: I'll speak to the land at this rate thanks for the question Eric.

Ray Hatch: Land and expand story really isn't indifferent any different than it has been it's just continued to grow and accelerate I think that's natural considering the clients. We've added we have more clients to expand with that gas.

Ray Hatch: So.

Ray Hatch: We've added at that the clients need basically quest that at its core its DNA is where problem solving company, we address client pain points.

Ray Hatch: We address client pain points, and as they bring them to us, we try to develop something that'll do exactly that. And that's where a lot of our new service lines come from. We don't typically greenfield by adding a service line and going out and hoping that somebody will buy it. We typically add services when there's already an existing demand within our clients. And so mostly that's been on the industrial side with some of those really kind of gritty kind of stuff like pond cleanings and stuff like that.

Ray Hatch: And as they bring them to us.

Ray Hatch: Try to develop something that'll do exactly that and that's where a lot of our new service lines come from we don't typically greenfield by adding a service line and go out and hope that somebody will buy it we typically add services when theres already.

Ray Hatch: Existing demand with our clients and so mostly that's been in the industrial side with some of those really.

Ray Hatch: Kind of gritty kind of stuff like PON, cleanings and stuff like that stuff, that's not traditional waste bed.

Ray Hatch: I mean, stuff that's not traditional waste, but it's really a pain point for clients. And as I mentioned in my remarks, one of the advantages we have for these large corporate clients is we help them get consistent compliance and execution on a lot of these activities because we're able to do them centrally for them and report back centrally. And then they make sure that they know that these things, that's why it's a pain point typically, right?

Ray Hatch: It's really a pain point for clients and I think we mentioned in my remarks, one of that.

Ray Hatch: Vantage, we have these large corporate clients as we help them get consistent compliance and execution on a lot of these activities.

Ray Hatch: Because we're able to do them centrally for them and report back Central and then they make sure that they know that these are <unk>.

Ray Hatch: Because it's not being done that way, and we have the ability to do so, and it's been helpful. As far as the percentage goes, I think if we talked about a percentage in the past of growth on this, it's single digits. As a percentage, we anticipate at least that on a going forward basis. It could be more. We're hopeful, but the runway looks pretty good for us, Aaron, on that expansion with those existing clients.

Ray Hatch: That's why it's a pain point typically right because it's not being done that way and we have the ability to do that and it's been helpful. As far as a percentage goes I think we talked about a percentage in the past.

Ray Hatch: Of growth on the single digit mid single digits.

Ray Hatch: As a percentage we anticipate at least that on a go forward basis.

Ray Hatch: It could be more.

Ray Hatch: Helpful.

Ray Hatch: The runway looks which looks pretty good for Sharon on that expansion with those existing clients.

Ray Hatch: Great. That's good to hear. Thanks for the color. Guys, I'll turn it over. Thank you, Aaron.

Speaker Change: Great. That's good to hear thanks for the color guys I'll turn it over.

Operator: Thank you, Aaron. We'll take our next question from Gregg Kitt with Pinnacle Fund. Please go ahead. Your line is open.

Speaker Change: Thank you Ara Thank you Sir.

Gregg Kitt: We'll take our next question from Greg Kit with Pinnacle Fund. Please go ahead. Your line is open.

Gregg Kitt: Hi, Brett.

Gregg Kitt: Hey, Greg Greg.

Gregg Kitt: Congratulations on a good quarter. Thank you. Just on the six new wins that you announced on the Q4 earnings call, it sounds like they are all on board now and will start contributing in the second quarter but didn't contribute in the first quarter. Was that right?

Gregg Kitt: Congratulations on a good quarter.

Speaker Change: Thank you.

Gregg Kitt: Just on the new the six new wins that you announced.

Gregg Kitt: On the Q4 earnings call that it sounds like they all are on boarded now and will start contributing in the second quarter, but didn't contribute in the first quarter was that was that right.

Ray Hatch: I'll take that. Yeah, most of them were. We have one that won't... be onboarded until Q3, of the Q4 wins that we mentioned. Yeah, or the, sorry, to clarify. We talked about them being Q1 wins subsequent to Q4. Exactly. Thanks. And the Q4 call.

Gregg Kitt: Hey, Craig this spread I'll take that.

Speaker Change: Most of them or we have we have one that will.

Speaker Change: That won't be.

Speaker Change: <unk> on boarded until Q3.

Ray Hatch: Of the Q4 wins you mentioned, yes.

Speaker Change: Or sorry.

Ray Hatch: Bye.

Ray Hatch: Talked about them being Q1 wins subsequent to Q4.

Ray Hatch: And the Q4 call yes.

Ray Hatch: Okay, great. And was that one customer, the eight-figure customer, or was that one of the smaller five?

Speaker Change: Okay great.

Speaker Change: Is that one customer.

Ray Hatch: The eight figure customer or is that one of the smaller.

Ray Hatch: This is one of the smaller five.

Ray Hatch: Five.

Ray Hatch: This is one of the smaller five.

Ray Hatch: Okay. Okay, great. And then as we think about the other customer, one that you announced after the Q4 earnings call, is that customer, can you help us understand how to think about that onboarding?

Speaker Change: Okay, Okay great.

Ray Hatch: And then as we think about the other.

Ray Hatch: Other customer win that you announced.

Ray Hatch: Yeah.

Ray Hatch: After.

Ray Hatch: The Q4 earnings call is that customer.

Ray Hatch: And can you help us understand how to think about that on boarding.

Ray Hatch: Is it beginning of Q3? Mid-Q3. Mid-Q3 on that one, Gregg. It's not going to be a ramp so much, the good news is that it should start, you know, pretty much full bore. The bad news is it just takes a while to get all the obligations taken care of and start generating revenue.

Ray Hatch: That's kind of be as.

Ray Hatch: At the beginning of Q3 mid Q3 mid Q3 Q3 on that one Greg.

Ray Hatch: It's not going to be a ramp so much. The good news is is that it can start.

Ray Hatch: Pretty much full bore.

Ray Hatch: The bad news is it takes a while to get it.

Ray Hatch: The obligation is taken care of and start generating the revenue.

Ray Hatch: Great.

Speaker Change: Thank you very much.

Ray Hatch: Thank you very much. Maybe you can help me understand how to think about some of the investments that you're making in bringing in all of these customers. You talked about some of that, but winning all these customers is one thing you've done a great job at. How confident are you in your ability to get all these customers onboarded, and why are you so confident, if you are, that you're going to get everybody onboarded and provide a really good service?

Ray Hatch: Sure.

Speaker Change: Maybe you can help me understand.

Ray Hatch: How to think about the some of the investments that youre, making in bringing on all of these customers you talked about.

Ray Hatch: Some of that.

Ray Hatch: Winning all of these customers is one thing you've done a great job in how how confident are you in your ability to get all of these customers on boarded.

Ray Hatch: Why why are you so confident and if you are that youre going to get everybody onboard it and.

Ray Hatch: Provided really good service.

Ray Hatch: Yeah, I'll take that, Gregg. I will tell you, it's an excellent question, and a year or so ago, I might have had a more difficult time answering, to be honest. We've made some really good investments structurally in bringing down some talent that is very experienced and primarily focused on onboarding and implementation of programs with existing and new clients. So we have an expansion there. And then also, it coincided, and it is coincident with an advance in some of our technology and our ability internally with our systems development.

Speaker Change: Yeah, I'll take that Greg I will tell you.

Ray Hatch: That's an excellent question and it's one of a year or so ago I might have had a more difficult time answering to be honest.

Ray Hatch: Made some really good investments structurally and bringing down some talent.

Ray Hatch: That is very experienced and primarily focused on on boarding.

Ray Hatch: Implementation of programs with existing and new clients. So we have an expansion there and then also it coincided it is coinciding with an.

Ray Hatch: In advance in some of our technology and our ability internally with our system's development. So when you combine the the human capital and the technology advancement, we're in a much much better position to be able to onboard significant clients today than we would have been a couple of years ago.

Ray Hatch: So when you combine human capital and technological advancement, we're in a much, much better position to be able to onboard significant clients today than we would have been a couple years ago. So that's kind of the investment we've made, and the timing has been good. And at the time we're growing, is the time we're best equipped to handle the growth. So that's kind of where we are.

Ray Hatch: So that's kind of the investment we made in the timing has been good.

Ray Hatch: And at the time, we are growing is the time, where we're best equipped to handle the growth. So that's kind of where we are.

Ray Hatch: My last question, sometimes I feel like the public market can kind of be, "What have you done for me lately?" And so you went to six customers in Q1, and hey, guess what? It's like 45 days later, you won one more customer. Are you going to win five more in the near future? I think Q1 was an unusual number of wins, and you're onboarding all of them now.

Speaker Change: Thank you.

Speaker Change: And my last question, sometimes I feel like the public market can kind of be what have you done for me lately and so you went six customers in Q1, and Hey guess, what it's like to 45 days later, you won one more customer.

Ray Hatch: Are you going to win five more shortly.

Ray Hatch: I think Q1 was.

Ray Hatch: Unusual amount of Av.

Ray Hatch: Wins in your Onboarding all of them now and so we should start to see the fruit of.

Ray Hatch: Those customer relationships starting in Q2, and then over the rest of the year.

Ray Hatch: And so we should start to see the fruits of those customer relationships starting in Q2 and then over the rest of the year. You talked about the pipeline being strong. Maybe help us understand how you think about where the pipeline is today versus a year ago. I heard an increase in number but also quality and size. How do you feel about your ability to close additional new customers over the rest of the year?

Ray Hatch: You talked about the pipeline being.

Ray Hatch: Being strong.

Ray Hatch: Maybe help us understand how you think about where the pipeline is today versus a year ago I heard increase in number but also quality and size.

Ray Hatch: How do you feel about your ability to close additional new customers over the rest of the year.

Ray Hatch: Thanks, I appreciate that. I feel really good about it, but I'm going to address your first remark too because it's so on target.

Ray Hatch: Yeah.

Speaker Change: Alright. Thanks, I appreciate that I felt really good about it but I'm going to address your first from art exists so on target.

Ray Hatch: You know, we've talked a lot about the sales cycle in this space. You know, we're a small company that sells to large companies, and this is typically a long sales cycle. So if anybody's just extrapolating by the week or the day or the month or the hour on new account hires, that's probably not the way to do it. So I appreciate that recognition.

Ray Hatch: We've talked a lot about the sales cycle in this space, we're a small company that sells to large companies.

Ray Hatch: And this is typically a long sales cycles. So if anybody is just extrapolating by the week or the day of the month of the hour on new account.

Speaker Change: Not the way to calculate.

Ray Hatch: So I appreciate that recognition so really what we do is is we try as fast as we can to take that pipeline and move it down the funnel.

Ray Hatch: So really, what we do is we try as fast as we can to take that pipeline and move it down the funnel. So there's an inherent lumpiness in bringing new accounts on board. I know that you guys have been with us a while and understand that.

Ray Hatch: So if there's a there's an inherent lumpiness.

Ray Hatch: And bring in new accounts on board I know that you guys have been with us while I understand that.

Ray Hatch: As far as the pipeline goes, it's significantly larger today than it was a year ago, and I think the quality goes two ways. So I said larger in size and in quality. There are two aspects of quality that I think are important. One is really the type of customer itself. You know, is this the kind of customer that's aligned with our goals and our targets? You know, and two is how aligned is it, well, it is the alignment. Two is how close are they, and how valuable are they as a client themselves in terms of size? So I guess it's...

Ray Hatch: As far as the pipeline goes.

Ray Hatch: It's significantly.

Ray Hatch: Significantly larger today than it was a year ago and I think the quality goes two ways. So I said larger in size and in quality.

Ray Hatch: There's two aspects of quality that I think are important one is.

Ray Hatch: Really the type of customer itself.

Ray Hatch: Is this the kind of customer that is aligned with our with our goals and our targets.

Ray Hatch: And two is how how aligned as well that it is the alignment two is how close are they and how how valuable are they.

Ray Hatch: As a client themselves and size so I guess it's.

Ray Hatch: I feel in a comparison, I think on both sides, we've got more of them, and we think that they're very strong. And the thing about high-quality clients, Gregg, is that a lot of people want them; a lot of companies want those guys. They're not out there just hoping somebody will call on them. So there's a lot of competition for those, and I feel like we're better equipped today to be able to meet those needs and win those clients than we have been in the past.

Ray Hatch: I feel in a comparison I think on both sides. We've got more of them and we think that there are very strong and the thing about high quality clients. Greg is a lot of people want a lot of companies want those guys. They are not out there just hoping somebody will call on them. So theres a lot of competition for those and I feel like we're better equipped today to to be able to meet those.

Ray Hatch: And when those clients and we have been in the past.

Ray Hatch: Thank you. If I can sneak one more in, you were able to discuss and disclose UNFI as a customer win, and then this most recent customer win sounds like it was a grocery store, if I heard you correctly. Can you help us understand, is there an immediate opportunity for Proganix with that new customer, or is that kind of similar to UNFI, that that's an opportunity over time?

Ray Hatch: Yes.

Speaker Change: Thank you if I can sneak one more in you were able to discuss.

Ray Hatch: Disclose UNFI is customer win and then this most recent customer wins it sounds like it was in grocery if I heard you correctly.

Ray Hatch: Yes can you help us understand is there an immediate opportunity for proteomics with that new customer or.

Ray Hatch: Or is that kind of similar to UNFI that that's an opportunity over time.

Ray Hatch: There's an existing, what we would call a more traditional food waste program going on with that existing customer. So the opportunity for Organics is to implement it within that organization and expand the existing program. So it won't really be a growth of volume or revenue by bringing it in, but an improvement and enhancement of the program. What I'm saying is they're already a very, very strong company in food diversion, but they don't have the advantage of that program. We think it's going to be really helpful for them on a go-forward basis. And what was your other question relative to that? I'm sorry.

Ray Hatch: There is an existing what we would call a more traditional food waste program going on with that existing customers. So the opportunity for organics is too.

Ray Hatch: It's implemented in that organization and expand the existing program. So it won't really be a growth of volume or revenue by bringing him, but an improvement and enhancement of the program. What I am saying is they are already a very very strong company in food diversion.

Ray Hatch: But they don't have the advantage of that program, we think it's going to be really helpful for them.

Ray Hatch: On a go forward basis.

Speaker Change: What was your other question relative to that I'm sorry.

Ray Hatch: I think it was just around the opportunity for, is Perganix going to turn on now, or is that more of a longer-term opportunity? So I think you answered it.

Speaker Change: And I think it was just around the opportunity for is <unk> going to turn on now.

Ray Hatch: Or is that more of a longer term opportunity. So I think you answered it yes.

Ray Hatch: Yeah, it's an enhancement to an existing one. I wanted to make sure that I was clear that with UNFI, I guess what I'm saying is that we're going to start with all that business, and Proganix would be an implementation that would enhance an existing food waste program for them.

Ray Hatch: Yes, it's an enhancement to an existing one I wanted to make sure that I was clear that with UNFI.

Ray Hatch: I guess, what I'm, saying is is that we're already we're going to start with all of that business <unk> will be an implementation that would enhance an existing <unk>.

Ray Hatch: Food waste program for them.

Ray Hatch: Thank you very much, and thanks for your hard work.

Speaker Change: Thank you very much and thanks for your hard work.

Ray Hatch: You bet, Gregg. Thanks.

Speaker Change: You bet, Greg. Thank you thanks, Craig.

Operator: We'll take our next questions from Nelson Obus with Winfield Capital. Please go ahead, your line is open. Hi Ray. I'm curious, what percentage of the clients you have is an itemization of exactly how you recycle so the client can use that for ESG purposes? Is that the normal part, or is this just something you're adding as we move?

Ray Hatch: We will take our next question from Nelson Opus with Winfield capital. Please go ahead, hi, there is open hi.

Operator: Ray.

Nelson Jay Obus: I'm curious what percentage in terms of the <unk>.

Operator: Clients you have is itemization of.

Nelson Jay Obus: Exactly how you recycle so the client can use that for ESG purposes is that.

Nelson Jay Obus: The normal part or is this just something you're adding as we move forward.

Nelson Jay Obus: When you say itemization, do you mean the data reporting for them? Is that what you're saying? Yeah, the data, exactly. The data of where their waste wound up that they can utilize in terms of sustainability.

Nelson Jay Obus: When you say Itemization, you mean, the data reporting for them.

Nelson Jay Obus: Exactly the data of where their waste wound up that they can utilize yeah in terms of the sustainable or is that a normal part of the contract or or an add on.

Ray Hatch: Is that a normal part of the contract or an add-on? It's part of our sales pitch, Nelson, to be honest with you, because we think it's a differentiator for us. And I think a lot of our prospects and clients don't even know it's available until we share it with them. So it's an enhancement. And we offer it every time because it's a differentiator. So we have a lot of usage. And as we bring on new clients, we find that the demand for it is higher every year than it was a year before.

Ray Hatch: It's a it's part of our sales pitch.

Ray Hatch: Pitch Nelson to be honest with you because we think it's a differentiator for us.

Ray Hatch: And I think a lot of our prospects and clients don't even know what's available until we share it with them. So it's an enhancement.

Ray Hatch: And we offer it.

Ray Hatch: Every time, because it's a differentiator so we have a lot of usage and as we bring on new clients. We find that the demand for it is more so every year than it was a year before.

Ray Hatch: Okay, so it's trending, basically.

Ray Hatch: Oh, Okay. So it is trending basically.

Ray Hatch: It's trending up, for sure, yes.

Speaker Change: Yes, it's trending up for sure yes.

Nelson Jay Obus: I'm a little confused about the compactor world now that you've got, you know, what seems to be a growing number of compactors. Is this something that is a separate revenue stream, or is it part and parcel of the contract that you sign with the individual customers?

Speaker Change: I'm, a little confused in the compact and world.

Nelson Jay Obus: Now that you've got what.

Nelson Jay Obus: It seems to be a growing number of <unk>.

Nelson Jay Obus: <unk> is something that is a separate revenue stream or is it is part and parcel of the contract that you signed with the individual customers.

Ray Hatch: It's a separate revenue stream, Nelson, and the contract has different terms. Typically, it's a longer term because you're putting a capital asset on the ground, you know, to go do that. So the economics, that's part of the economics, the longevity. When these things hit a contract, the renewal rates are extremely high. They're retained typically for multiple renewals on a five-year agreement, the traditional terms for these. That's separate from the waste contract in and of itself.

Speaker Change: It's a separate revenue stream Nelson and the contract has different terms.

Ray Hatch: Typically it's a longer term because youre, putting a capital asset on the ground.

Ray Hatch: To go do that so the economics, that's part of the economics longevity. When these things hit hit a contract the renewal rates are extremely.

Ray Hatch: Extremely high they are retained typically for multiple renewals on a five year agreement.

Ray Hatch: As the traditional terms for these so that's separate from the.

Ray Hatch: The waste contract in and of itself.

Nelson Jay Obus: So it seems like you're approaching 300 compactors. I mean, at what point will it be a differentiator in terms of the P&L?

Ray Hatch: So it seems like you're approaching 300, Compactors I mean at what point will it be a differentiator in terms of the P&L.

Ray Hatch: Well, that's a good question. We just acquired some, it's actually closer to 400, I think, at this point. Okay. And this most recent acquisition really doesn't take, doesn't really start impacting until, well, the middle of Q2? Yeah, middle of Q2. So as a differentiator, you should start seeing it, and well, mostly in the back half of the year, Q3 and Q4, based on when we implemented it.

Speaker Change: Well that's a good question, we just acquired its actually closer to 400 I think at this point okay.

Ray Hatch: Yes. The most recent acquisition really doesn't take doesn't really start impacting until.

Ray Hatch: Well the only Q2, yes, Miller Q2, so as a differentiator you should start seeing it mostly you'll see it on the back half of the year Q3, and Q4 based on when we implemented it.

Nelson Jay Obus: Now, you don't have a lot of bad debt expense, but it was up meaningfully in the quarter. I'm just, you know, what are your thoughts about that, and how do you, I know you bill people a month in advance, but the DSOs go beyond that, but are there flags that you look for to make sure that people come up with what they owe?

Ray Hatch: No you don't have a lot of bad debt expense, but it was up meaningfully in the quarter.

Nelson Jay Obus: I'm just.

Nelson Jay Obus: What are your what are your thoughts about that and how do you I know you build people a month in advance, but the dsos to go beyond that but either flags that you look for to make sure that people come across with what they do.

Brett W. Johnston: Hey, Nelson. It's Brett. I'll take that one. Yeah, bad debt was up, mostly related to just the fact that AR was up year over year. We do have a couple of things we're reserving a little bit more for, but nothing significant. Most of it's just formulaic.

Nelson Jay Obus: Hey, Nelson this is Brett I'll take that one.

Brett W. Johnston: Yeah Bad debt was up mostly related to just the fact that AUR was up year over year. We do have a couple of things, we're reserving a little bit more for but but nothing significant most of it is just formulaic.

Brett W. Johnston: In terms of just DSOs in general, as we mentioned on the call or in the prepared portion, you know, we didn't finish the quarter as strongly as we would have liked. We've done a lot early in the year, and unfortunately, it didn't quite materialize. I'm excited about where we are already, you know, a month into Q2, but we've made some organizational changes to realign focus there. We've enhanced some reporting, increased visibility, and driven some more accountability there. So, I'm really excited about the progress we've made. It didn't quite show up in the Q1 numbers, but I think I'm excited about what we're going to be able to produce in Q2.

Brett: In terms of just Dsos in general as we mentioned on the call are.

Brett W. Johnston: The prepared portion.

Brett W. Johnston: We didnt finish the quarter as strongly as we would've liked we've done a lot.

Brett W. Johnston: Early in the year and unfortunately, it didn't quite materialize I'm excited about where we're at already.

Brett W. Johnston: A month into Q2, but we've made some organizational changes.

Brett W. Johnston: To realign focus there.

Brett W. Johnston: We've enhanced some reporting increased visibility.

Brett W. Johnston: Driving some more accountability there so I'm really excited about the progress we've made it it didn't quite.

Brett W. Johnston: <unk> show up in the Q1 numbers, but I think I am.

Brett W. Johnston: Excited about what we're going to be able to produce in Q2.

Nelson Jay Obus: Fine. Last question. You know, in the past, you've quantified some of the SGA savings that would flow from IT enhancement. I'm just curious, I mean, SG&A is moving up a little bit, not a lot, but do you, I mean, how much of this is capitalized and how much is expensed, you know, as we move forward?

Brett W. Johnston: Yeah.

Speaker Change: And last question.

Nelson Jay Obus: You.

Nelson Jay Obus: Quantify some of the.

Nelson Jay Obus: Some of the SG&A savings that would that would flow from it enhancement.

Nelson Jay Obus:

Nelson Jay Obus: I'm just curious I mean, your SG&A is moving up a little bit not a lot but.

Nelson Jay Obus: Do you I mean, how much of this is capitalized and how much of it is.

Nelson Jay Obus: As expense.

Nelson Jay Obus: As we as we move forward.

Brett W. Johnston: in terms of the IT spend? Yeah, yeah. Yeah, as we go forward, we'll have less and less capital. It'll just be kind of ongoing maintenance. So, you know, we've talked. We're pretty close to having a lot of this stuff fully ramped up, so those expenses will be coming down. And as you mentioned, yeah, Q2, we're expecting a little bit of increased SG&A as, you know, we've got to build some additional expenses to support the growth and the new wins. But when we get into Q3 and Q4, we'll be in a better position to talk about the savings that we're expecting. We're certainly excited about that portion.

Nelson Jay Obus: In terms of the it spend yeah, yeah, yeah. As we go forward, we'll have less and less capitalized that'll just be kind of ongoing maintenance. So you know we've talked we're pretty close to having a lot of this stuff fully ramped up so those those expenses will be coming down.

Brett W. Johnston: And as you mentioned, yes, Q2, we're expecting a little bit of increased SG&A.

Brett W. Johnston: As you know we've got to build some additional expenses to support the growth of new wins, but when we get into Q3 and Q4 will be in a better position to talk about the savings that we're expecting or we're certainly excited about that portion.

Nelson Jay Obus: And I would assume that by fiscal 25, the rate of change will be lower, if any, depending on how you grow. Is that fair?

Brett W. Johnston: And I would assume by fiscal 'twenty five the rate of change will be lower.

Nelson Jay Obus: If any.

Nelson Jay Obus: Depending on how you grow is that fair.

Brett W. Johnston: In terms of flow-through rates, absolutely our flow-through rate will continue to improve, especially into next year as we've got a full year of all of these initiatives and savings. Yep. Great. That's all I have.

Nelson Jay Obus: In terms of flow through rates, absolutely our flow through rate will continue to improve especially into next year as we've got a full year of all of these initiatives and savings yeah, great. That's all I have.

Speaker Change: Thank you. Thank you.

Operator: And there are no further questions on the line at this time. I'll turn the call over to Ray Hatch for any closing comments.

Brett W. Johnston: And there are no further questions on the line at this time I'll turn the call to Ray hatch for any closing comments.

Ray Hatch: Thank you, operator, and most importantly, thanks to all of you out there for your interest in Quest and taking the time to be on the call and hear our story. As always, I make a note to remind myself, I want to thank the Quest team. I know a number of you are on the call.

Ray Hatch: Thank you operator, and most importantly, thanks to all of you out there and your interest in quest and taking the time to be on the call here our story.

Ray Hatch: I as always I make note to remind myself I want to thank the quest team I know a number of you are on the call.

Ray Hatch: All of these folks have continued to work diligently and help us execute on our plan to be a much better supplier to our customers. And it's just tremendous to watch them do that, and I'm greatly appreciative. The initiatives that we've been putting in place, some of these initiatives over the course of years, are starting to really show traction, and I think we're at, I guess the operative word is inflection point. I'm really excited as to the progress we've made now, but mostly, and more importantly, it's what we have in front of us. It's tremendous, the scalable leverage piece that we're building, along with the ability to grow new clients. It's all pointing forward, and the momentum's great.

Ray Hatch: All of these folks have continued to work diligently and help us executing our plan to be a much better supplier to our customers and.

Ray Hatch: It's just tremendous to watch them do that and I'm greatly appreciative.

Ray Hatch: The initiatives that we've been in place some of these initiatives over the course of years are starting to really show the traction and I think we're at a I guess the operative word is inflection point I'm really excited at the progress we've shown now, but mostly and more importantly.

Ray Hatch: That's what we have in front of us.

Ray Hatch: It's yes.

Ray Hatch: And that's tremendous to scale the scalable leverage piece that we're building along with the ability to grow new clients along with the ability that the team is putting together with new service lines to grow with existing clients.

Ray Hatch: It's all pointing forward and the minimum is great. So I just look forward to keeping all of you up to date.

Operator: So I just look forward to keeping you all up to date on the quarters to come. And again, thank you for your faith and interest in Quest. This does conclude today's program. Thank you for your participation, and you may now disconnect.

Operator: In the quarters to come and again, thank you for your faith and interest in quest.

Operator: This does.

Operator: This does conclude today's program. Thank you for your participation and you may now disconnect.

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