Q1 2025 Quest Resource Holding Corp Earnings Call
Speaker Change: Good day everyone and welcome to the Quest Resource Holding Corporation 1st quarter 2025 earnings call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation.
Speaker Change: And other forward looking statements regarding future events and future performance of quest use of words like anticipate project estimate expect intend believe and other similar expressions are intended to identify those forward looking statements such forward looking statements are based on quests current expectations estimates projections beliefs and assumptions and <unk>.
Speaker Change: There are 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.
Speaker Change: You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties.
Speaker Change: 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.
Speaker Change: In addition in this call we may make we may include industry and other market data and other statistical information as well as quests observations and dress 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.
Speaker Change: Although quest believes these sources are reliable and that the data and other information are accurate. We caution that quest has not has not independently verified the reliability of the sources or the accuracy of the information.
Speaker Change: Certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by the management to make strategic decisions forecast future results and evaluate the Companys current performance.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: With all that said I'll now turn the call over to Dan Free Bird Chairman of the board. Thank.
Speaker Change: Thank you Dave Good afternoon, and thank you for joining us on today's call. Joining me today are Perry Mas CEO and Brett Johnston our CFO.
Speaker Change: Before I turn it over to Brett Perry I want to emphasis emphasized our commitment as a board and a management team.
Speaker Change: To aggressively driving change and enhancing shareholder value.
Speaker Change: The results in the first quarter were as expected.
Speaker Change: As discussed in our last call, we decisively implemented a series of actions, which we will accept expect will drive both near and long term improvements.
Speaker Change: We completed the sale of the non core part of the our WSI business, which had been a source of inconsistent financial performance in.
Speaker Change: In addition to the ongoing cost savings related to exiting this business the sales generated $5 million in cash which was used to reduce debt in total our cost reduction actions have reduced SG&A costs by $3 million on an annualized basis. It should be reflected in lower SG&A costs going forward.
Speaker Change: We added two highly experienced executives promoting to remaster, CEO and adding Nick over as senior Vice President of operations, adding to an already strong operating team.
Speaker Change: We expect even further long term savings and efficiency gains as we implement ongoing initiatives and drive process improvements.
Speaker Change: We are focused on generating cash improving profitability lowering debt and increasing operating efficiency.
Speaker Change: In addition by working in partnership with our lenders PNC in Monroe, we have amended the terms of our debt agreements. These changes will provide increased flexibility as we implement our operating improvements.
Speaker Change: Over the coming months finally, we wanted to welcome Bob Let's stick to the board of directors, we met Bob over a year ago. Bob is a seasoned financial executive has an audit background with a big four firm and will be a good addition to the board in summary.
Speaker Change: We have implemented a series of changes in our cost structure.
Speaker Change: Our management team in our operating philosophy, all focused on improving operating performance. We are pleased with the progress of these changes and are beginning to see the initial operating benefits.
Speaker Change: In addition, I would like to stress that our value proposition continues to resonate with prospective and existing clients and our pipeline of opportunities continues to grow with that I will turn the call over to Brett Perry Bret.
Thanks, Dan and good afternoon, everyone.
Brett Perry: During the first quarter, we continued to make progress with Onboarding new clients.
Brett Perry: As expected this progress was offset by lower volumes at a select number of larger clients in the industrial sector.
Brett Perry: The effect of past client attrition and temporarily elevated expenses.
Brett Perry: All of which were discussed on our last call.
Brett Perry: In addition, we have begun to see the positive impact of efficiency initiatives and the cost reduction in SG&A.
Brett Perry: Revenue for the first quarter was $68 4 million, which was a decrease of 6% from a year ago and down 2% sequentially from the fourth quarter.
Brett Perry: The decrease in revenue was attributable to lower volumes due to client attrition.
Brett Perry: And lower volumes at a select number of larger clients.
Brett Perry: Both factors that we have described on previous calls.
Brett Perry: Client attrition contributed approximately $7 million to the decline in revenue this.
Brett Perry: This includes loss revenue from clients in the divested mall related business, which contributed approximately half of the loss.
Brett Perry: Other revenue was down approximately $8 million, which was mostly related to lower volumes at certain large clients.
Brett Perry: As we said previously the relationships with these clients continue to be strong and there are opportunities to add services with them in the long term.
Brett Perry: However, client volumes have decreased for now which is likely to continue to affect volumes for at least the next several quarters.
Brett Perry: These revenue decreases were only partially offset by revenue from new clients.
Brett Perry: New clients secured during 2024 finished the first quarter at approximately 80% of their anticipated run rate.
Brett Perry: We expect last year's new clients to provide incremental growth in both revenue and gross profit dollars as we complete the rollout in optimized services this year.
Brett Perry: During the first quarter gross profit dollars were $10 9, million% to 22% decrease from last year, and a 2% increase sequentially from the fourth quarter.
Brett Perry: As anticipated the year over year decrease in gross profit dollars was primarily related to four factors.
Brett Perry: First <unk>.
Brett Perry: <unk> contribution due to customer attrition second lower volumes at a select number of larger clients.
Brett Perry: Third the shift in revenue mix and for the temporary increase in cost of services.
Brett Perry: Regarding the mix shift as we discussed on previous calls we had less revenue from more mature client relationships, where the margin profile has been optimized and it was replaced by revenue from new clients and expanding engagements where it typically takes several quarters to optimize the margin profile.
Brett Perry: Regarding higher than anticipated cost of services as we also discussed previously we experienced a temporary increase in costs associated with customer Onboarding and the implementation of our vendor management platform.
Brett Perry: With these efforts complete we do not expect temporary increases in cost of service to continue going forward.
Brett Perry: We expect sequential improvement in gross profit dollars beginning in the second quarter as we benefit from efficiency initiatives and growth.
Brett Perry: Moving on to SG&A, which was $11 4 million during the first quarter, an increase of $1 6 million versus last year, and a $1 3 million increase sequentially from the fourth quarter.
Brett Perry: The sequential increase was primarily related to separation costs and the resumption of bonus accruals we.
Brett Perry: We expect SG&A cost a decrease sequentially in the second quarter as we benefit from increased efficiencies and lower cost.
Brett Perry: Beginning in the second half of the year, we expect SG&A to be approximately $9 5 million per quarter.
Brett Perry: Before I move on we had a couple of noncash charges during the first quarter.
Brett Perry: First was a $4 4 million loss related to the sale of the noncore portion of the order of the U S business.
Brett Perry: In addition, we recorded a $1 $7 million adjustment to the carrying value of the intangible assets related to customer attrition of acquired clients.
Brett Perry: Moving on to a review of the cash flows and balance sheets.
Brett Perry: At the end of the first quarter, we had $1 4 million in cash approximately $21 million of available borrowing capacity on our $45 million operating borrowing lines for <unk>.
Brett Perry: The first quarter, we used approximately $1 $1 million in cash to fund operations, which was related to an increase in working capital as.
Brett Perry: As we described on previous calls our accounts receivable balances are at elevated levels.
Brett Perry: Note that we have great relationships with clients elevated.
Brett Perry: <unk> are not related to collectability.
Brett Perry: Dsos have been impacted by the timing of collections from a few of our largest customers and we continue to work with them to accelerate the pace of collections.
Brett Perry: In addition, with the implementation of our automated AP system, we will be able to bill at a faster pace further accelerating our cash cycle and lowering dsos, we expect to see improvements in dsos by the end of the second quarter.
Brett Perry: We received $5 million in proceeds from the sale of the non core portion of the <unk> business in.
Brett Perry: In addition to the cash proceeds there is a $6 5 million earn out payable by the buyer over three years.
Brett Perry: We used $2 $5 million of the cash proceeds to reduce borrowings on the mineral line and then the balance resulted in a $1 million net reduction in the balance with PNC.
Brett Perry: We also amended our agreements with Monroe in P&C. So that we have additional time to realize the positive effects of our initiatives on our profitability and cash flow.
Brett Perry: Our rates have returned to the level prior to the refinancing in December and will return to the lower level. Once we return to our historic run rate.
Brett Perry: And in further support of that our covenants have been eased through 2025 with a quarter to three quarter turn easing of the leverage covenant ratios.
Brett Perry: Additionally, we will be tested on leverage and FCC are with an annualized buildup of trailing 12 months of adjusted EBITDA, starting with our Q2 results.
Brett Perry: Finally at the end of the quarter, we had $74 1 million in notes payable.
Brett Perry: $76 million at the beginning of the year.
Brett Perry: At this time.
Brett Perry: I will turn the call over to period.
Brett Perry: Yeah.
Brett Perry: Thank you Brett.
Brett Perry: Since our last call two months ago, we have been hard at work and are making progress on our short term initiatives and continuing to develop our long term initiatives are key priorities as discussed during our last call our to improve EBITDA improved cash generation and pay down debt.
Brett Perry: First we have established an operations excellence initiative is part of a cultural shift in our company.
Brett Perry: Our culture remains client centric focused on providing exceptional value. However, with this shift we have a greater emphasis on performance and accountability, we are establishing metrics and processes.
Brett Perry: We used to benchmark.
Brett Perry: Measure and target improvement levels across the entire organization.
Brett Perry: This fully integrated effort, we will look to drive process improvements.
Brett Perry: Improved cash flow accelerate automation and.
Brett Perry: Enhanced employee experience increase customer value add.
Brett Perry: Expand margins and accelerate the achievement of scale benefits.
Brett Perry: This was similar to initiatives that helped create a positive change in our sales organization and is now being rolled out across the entire company.
Brett Perry: This is a key to coaching and motivating employees.
Brett Perry: Key to demonstrating value to clients and key to driving performance.
Brett Perry: Since our last call. We have initiated several projects that are now in flight and expected to deliver improved results.
Brett Perry: We will have more details in the coming quarters.
Brett Perry: In addition to the vendor management platform, which is helping us move to zero touch processing, we are developing workflows, which will drive process improvements across our value chain.
Brett Perry: This will increase efficiencies.
Brett Perry: Lower operating costs drive improved customer service and improve profitability and create a strong foundation as we scale the business.
Brett Perry: These activities are ongoing and build upon the efforts made over the last two years and are focused on accelerating them and increasing their financial impact.
Brett Perry: We are also working to optimize signet the significant amount of new customers that we have been on boarding in the past several quarters.
Brett Perry: As we have described in the past it can take several quarters for us to optimize service for clients.
Brett Perry: We share in these improvements and optimizations with our clients and their relationship mature as the relationship matures, we improved the margin profile of the business.
Brett Perry: The optimization is well underway and we expect to see continued improvement in the margin profile from new customers throughout the year.
Brett Perry: In addition to driving operational improvements, we have been growing and moving opportunities through our sales pipeline.
Brett Perry: Our pipeline is robust and our sales force is executing a structured and disciplined plan to add new clients.
Brett Perry: Given the nature of our business, we don't estimate wind deals in our pipeline may close.
Brett Perry: But I can say that opportunities are progressing through our funnel and we believe we will continue to add new clients and client expansions.
Brett Perry: And finally, we are very focused on expanding our share of wallet of existing customers.
Brett Perry: Adds significant value to customers and believe there are opportunities just systemically grow our existing customers.
Brett Perry: Regarding our outlook.
Brett Perry: Some of the actions we've taken are beginning to show results. The cost we incurred on a temporary basis related to onboarding, new clients and the transition to a new AP system are abating.
Brett Perry: In addition, we are a few weeks past the cost reduction actions. We took during the first quarter and we are starting to see the effects of that.
Brett Perry: These initiatives are continuing to take hold and we expect steady improvement as we move through this year.
Brett Perry: Historically, we have performed well during economic downturns, and we are monitoring our markets and customers closely.
Brett Perry: Our industrial clients have shown some weakness and given the uncertainty in the economy generally volume with with them may be impacted with that said, we have great relationships with these clients and believe there are opportunities to do more with them in the longer term.
Brett Perry: Overall for 2025, we expect to show both top and bottom line growth and expect to resume or meaningful growth as we exit the year.
Brett Perry: Before we open it up for questions I want to reiterate Dan's statement at the beginning of the call.
Brett Perry: <unk>.
Brett Perry: Management and our entire team are committed to aggressively drive change and enhance shareholder value.
Brett Perry: The market for our asset light model remains robust we are gaining share clients are providing us strong referrals and we have opportunities to increase our share of wallet and.
Brett Perry: And our cost oriented value proposition is resonating loudly.
Brett Perry: In addition, we are committed to maintaining a solid balance sheet and our priority for capital allocation remains the repayment of debt.
Brett Perry: And we are and will continue to take decisive action to improve our ability to execute.
Brett Perry: Generate consistent sustainable and profitable growth going forward.
Brett Perry: We would now like the operator to provide instructions on how listeners can queue up for questions operator.
Speaker Change: Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
Speaker Change: We do ask that we're posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Speaker Change: Please hold while we poll for questions.
Speaker Change: Thank you. Your first question is coming from Aaron's about chiller from Craig Hallum. Your line is live.
Craig Hallum: Yeah, Hi, Barry and Brett Thanks for taking the question.
Speaker Change: Maybe first for me, it's been a week since the law.
Craig Hallum: Last call.
Craig Hallum: In theory, you're kind of focused a lot on operational excellence and use the analogy of kind of.
Craig Hallum: That's right fight with the growth that you've been experiencing just curious.
Craig Hallum: You've kind of identified any leaks.
Craig Hallum: What kind of gaps.
Craig Hallum: And just kind of any notable kpis to highlight it.
Craig Hallum: We focus on execution moving forward.
Craig Hallum: Yeah. So.
Craig Hallum: So I do I do remember that analogy and yes, we the first thing that we have done is we started to baseline all of our processes. So when we talk about.
Craig Hallum: Operational initiative, our operational excellence initiative, we're not referring to just operations, but it's really the new way that we're running the company. So it involves the way we manage our vendors our customers the way we pay our bills. The way we process invoices, it's really the entire value chain that we're focused on.
Craig Hallum: So yes, we have indeed identified flaws.
Craig Hallum: Flaws and gaps in the process. The the processes were not broken as I had mentioned before but we've certainly identified some some weaknesses we have designed.
Craig Hallum: <unk> processes to fix those gaps we've implemented a number of them in.
Craig Hallum: In addition to implementing those changes to kind of our longer term initiatives. We've also implemented some some I call them quick hits, but some quick initiatives to drive some immediate impact beginning in Q2.
Craig Hallum: So.
Craig Hallum: I remain optimistic and bullish about our ability to execute.
The challenge that we have is we have just not converted our our business into profit and that really comes from filling those gaps and increasing efficiencies in our in our operations, which is precisely what we're doing so.
Craig Hallum: Yes, theres more more to come but we certainly have begun the path to improvement and beginning to see results.
Speaker Change: Thank you. Your next question is coming from Gerry Sweeney from Roth Capital. Your line is live.
Speaker Change: Yes, good afternoon pairing great. Thanks for taking my call and Dan.
Speaker Change: Hey, Jerry.
Speaker Change: Youre seeing some weakness in end markets I think with some of your more mature companies just curious if.
Speaker Change: If that has increased over the last eight weeks obviously.
Speaker Change: We woke up today in the world is getting better, but just curious as to what youre seeing out there.
Speaker Change: And the general market.
Speaker Change: Yeah.
Speaker Change: I'll take that at least initially I I don't think were seeing any increase in the weakness in our market and.
Speaker Change: At least I remain hopeful that.
Speaker Change: With some of the.
Speaker Change: With some of the new developments perhaps.
Speaker Change: You'll see some strength returning but yes.
Speaker Change: Yes, no no no significant change demand is and volumes are slightly down.
Speaker Change: I don't see any necessarily any change in the immediate future, but certainly hopeful.
Speaker Change: Got you and.
Speaker Change: And sorry, the last one of the comments I missed a little tongue in cheek, but.
Speaker Change: The other part was what about pipeline, obviously, there was some uncertainty into the markets that have percolated. Nevertheless.
Speaker Change: Weeks.
Speaker Change: Are you seeing longer.
Speaker Change: Sales cycles, starting to merge or people pulling back.
Speaker Change: It's basically saying, let's see what happens or how does that pipeline work with yeah, yeah its duration.
Speaker Change: Yeah, Great question so.
Speaker Change: With some of our opportunities we've seen a bit of a slowdown.
Speaker Change: You know I don't think its anything of.
Speaker Change: That will last for a significant time I think decision makers are just being a bit more cautious before kind of pulling the trigger what's interesting. However.
Speaker Change: As we are we are attracting prospects that have never used this model before.
Speaker Change: And I think it's because of the uncertainty in the economy.
Speaker Change: Companies are there.
Speaker Change: They are back to business they are back to running their business as efficiently as possible. They are looking for cost savings or looking for efficiencies.
Speaker Change: And these are primary value propositions of our model so while we have seen.
Speaker Change: Some slowdown maybe in a couple of prospects, but nothing significant we're seeing increased demand actually for our services.
Speaker Change: And.
I measure or our pipeline by different stages in the sales cycle and I'm. Most interested in the final stages of our sales cycle. Those two stages are more robust than they've ever been.
So.
Speaker Change: As I as I mentioned in my comments, you know I anticipate our growth to continue.
Speaker Change: Got it.
Speaker Change: One for Bret, obviously, dsos, a little higher maybe even its definitely higher.
Speaker Change: How do we bring those down a little bit I mean, obviously.
Speaker Change: We're in a period of uncertainty companies again pull things back and maybe a little bit slower pay.
Speaker Change: You're a little bit of a smaller company compared to some of your clients. So.
Speaker Change: What are the strategies to sort of bring that DSO.
Speaker Change: The count down.
Speaker Change: Yes.
Speaker Change: I think first and foremost we've got.
Speaker Change: A couple of larger clients that have moved just across the quarter. We've been talking about that we've had good conversations some of it's just inefficiency and processing those through.
Speaker Change: Certainly no concerns with Collectability.
Or relationships, there and it's just ongoing conversations that we're having we've seen some improvement we just haven't been able to quite get those inside the quarter, yet, but we continue to work and have good conversation.
Speaker Change: And then as we talked about in the prepared remarks.
Speaker Change: The focus has been near term on or over the last year on the AP system.
Speaker Change: That was critical to kind of provide a path on some of these other initiatives as well.
Speaker Change: One of which gives us increased visibility into missing invoices and other types of things that we can now get better visibility and be proactive and go out and find those and get the get those across the finish line to be built sometimes it's just missing volumes that you needed, but it's getting that.
Speaker Change: <unk> now done on the on the billing side, which is much more customer specific so it can be a little bit more challenging but there are some definite opportunities there for us to improve.
Speaker Change: Got it so maybe to summarize even getting it fills out a little faster a little bit cleaner, a little bit more efficiency. So they can be paid a little bit faster, but also.
Speaker Change: Visibility on some of the we'll call them problem children, and just being able to find them and recognize some of those issues before they get a little bit more outdated does that sort of hiring.
Speaker Change: Yes, that's a good summary here.
Speaker Change: Okay, great I'll jump back in queue. Thanks.
Speaker Change: Okay.
Speaker Change: Thank you. Your next question is coming from Owen Richard from Northland Capital markets. Your line is live.
Owen Richard: Hey, guys. Thank you for taking my question here.
Owen Richard: Quickly are there any notable changes into near end customer behavior or volumes just across your end markets that stood out this quarter or more specifically over the last month and a half other than in the industrial segment, just given some of the macro and tariff uncertainty.
Owen Richard: Yeah other than other than our industrial sector no not at all.
Owen Richard: In fact as I as I said, we've actually seen some.
Owen Richard: An uptick in demand for.
Owen Richard: The services that we provide.
Owen Richard: So no the other end markets, we haven't seen any effect.
Owen Richard: Okay.
Owen Richard: Perfect. Thank you.
Owen Richard: Sure. Thanks, John.
Speaker Change: Thank you. Your next question is coming from Nielsen <unk> from Winfield capital Your line either.
Speaker Change: Yeah, Hi, there guys.
Speaker Change: Yeah on the on the narrative here all the time.
Speaker Change: Customer attrition.
Speaker Change: Came up three or four times.
Speaker Change: And obviously half of it is.
Speaker Change: The asset sale, but the other half $3 million to $4 million is there any common denominator that shoe found that has caused the customer to leave you and go to a competitor.
Speaker Change: So the spread I'll take that.
Speaker Change: Yes, we have seen some tradition in some attrition as a reminder, you know this but always helpful to remind.
Speaker Change: Class not only class, but just the industry in general.
Speaker Change: Generally is very sticky so.
Speaker Change: We certainly expect this to continue but we certainly have been hit.
Speaker Change: With some isolated attrition that has mostly been.
Speaker Change: Related to customers being acquired with different programs in place.
Speaker Change: So we've seen some movement there as you mentioned.
Speaker Change: Half of that was related to the business that was exited.
Speaker Change: That business has been really inconsistent over the last year, especially.
Speaker Change: And then just outside of the attrition we continue to talk about some of the challenges on the industrial side, but.
Speaker Change: It's really isolated to those those customers that have been acquired with different programs in terms of just core attrition.
Speaker Change: Yeah that makes sense.
Speaker Change: And I'm just curious you I'm sorry.
Speaker Change: You talked about the bonus accrual.
Speaker Change: It will happen.
Speaker Change: If I'm an employee of the company in this quarter, how do I, how do I.
Speaker Change: Merit, a bonus accrual I'm curious.
Speaker Change: Well, it's our bonuses are built over a annualized forecast. So this is as you would imagine last year.
Speaker Change: There was a very low level of bonus paid out if any to most employees. So that's that buildup of the annualized and it will certainly get true up based on the performance of the company over this year.
Speaker Change: I think it is based on a yearly on your yearly estimated the boards approved correct, yes, yes, and it's measured at the end of the year. It's measured at the end of the year based on.
Speaker Change: Total performance.
Scott: Sure Scott.
Speaker Change: I assume.
Speaker Change: The salesmen are are are rewarded in a.
Speaker Change: Different mode.
Speaker Change: Given that other basket right.
Speaker Change: Yeah. There are Nelson there on a commission plan and they don't they don't earn a bonus.
Speaker Change: Okay, I hope they make a lot of money on commissions.
Speaker Change: Alright.
Speaker Change: Do as well.
Speaker Change: I really hope they do well and although we hold we hold that team very very accountable.
Speaker Change: They've got very high goals I have.
Speaker Change: High standards for the sales team, we track every move they make and when.
Speaker Change: Unfortunately, we've had to make a couple of moves for.
Some people that weren't performing but we've got a class a team.
Speaker Change: And as I said the pipeline is very robust.
Speaker Change: Good enough.
Speaker Change: Yeah.
Speaker Change: That's helpful.
Speaker Change: Thank you. Your next question is coming from Greg Kit from Pinnacle family Office. Your line is live.
Hi, Thank you for taking my questions.
Speaker Change: Perry I think.
Speaker Change: This quarter reflects your work two weeks into the job as CEO and so I don't think it's really fair to look at Q1 and say Hey, This is really representative of all the <unk>.
Speaker Change: Impact from the changes that you're putting into place I hear you guys talking about gross profit increasing in SG&A decreasing.
Speaker Change: Would be a fair timetable to evaluate a lot of these initiatives that you're putting in place do you think a year from now that a lot of this will have been we'll have taken effect and we will see material results. It sounds like some of it starts in Q2.
Speaker Change: Yeah, I think Thats fair Greg.
Speaker Change: And I appreciate your earlier comment about.
Speaker Change: My short time in a position, but ive been in this industry for 35 years.
Speaker Change: Where to look.
Speaker Change: Yeah, I think a year from now we're going to look like a very different company I expect to see results beginning Q2, but largely in Q3 and Q4 they'll come to fruition.
Speaker Change: So and look this is the cultural shift that we're making this isn't this isn't a one time.
Speaker Change: One time effort.
Speaker Change: We're changing the culture of the company were.
Speaker Change: The.
Speaker Change: The strategy is about continuous improvement never being satisfied with where we're at and always striving to do better.
Speaker Change: So I don't want to I don't want to sound like we're taking some quick hits in some quick initiatives and then we'll sit back and relax. This is never going to end, we'll constantly strive to improve.
Speaker Change: Thank you.
Speaker Change: The comments around attrition I think in Brent commentary.
Speaker Change: He said something like past client attrition was there any material attrition in this quarter or this resolve this.
Speaker Change: Attrition that you had previously referenced on the Q4 call.
Speaker Change: Yes, I'll take that Greg, Yes, most of it.
Speaker Change: Substantially from previous attrition that we've talked about.
Speaker Change: One thing to add Greg is.
Speaker Change: We take attrition very seriously I I do especially in.
Speaker Change: We've instituted a new customer retention plan, where our I'll be personally involved.
Speaker Change: So I am getting out to meet our top customers developing higher level relationships.
Speaker Change: Redeveloped being specific customer plans for every one of our customers which include how do we add value to those customers. How do we expand our margins, we're establishing cadences on how often to visit customers.
Speaker Change: Times are changing now where customers are they're welcoming us back into their offices. So we're taking advantage of that.
Speaker Change: And we're measuring the progress we're also tracking share of wallet, which is just now really beginning so there is a top priority effort on my part to focus on customer retention.
Speaker Change: Do you mean customers are welcoming you back in because of COVID-19 policies or something yeah.
Speaker Change: They are back in the office and or when they are not I mean people are kind of back to business again.
Speaker Change: For the longest time it was people didn't want to get out of their pajamas to come out and meet.
Speaker Change: No.
Speaker Change: It's all changing again.
Speaker Change: And I'm happy to see that yes youre welcome.
Speaker Change: David.
Speaker Change: <unk> the divested part of our Ws have any associated SG&A also over all the cost to serve that revenue and Cogs.
Speaker Change: Hey, Greg the spread again, yes, there were certainly.
Speaker Change: A lot of direct costs associated with that business. It was fairly high touch business.
Speaker Change: So as we announced as part of our reduction that we announced in.
Speaker Change: In March those those have bled through as well, though some of those were direct.
Speaker Change: And some of those are related to the REIT business as well.
Speaker Change: Okay, and so the SG&A reduction that you talked about for the second half I think you said $9 5 million a quarter is there some way to think about how much of that improvement is from the <unk> divestiture versus these other initiatives.
Speaker Change: No, but well just to be clear.
Speaker Change: $3 million in annualized savings that we discussed that was all in place at the end of Q1, So we get that full run rate for the rest of this year.
Speaker Change: As we continue to look and drive additional efficiencies through the business.
Speaker Change: We'll look to see some additional savings in the back half of the year, but that full $3 million has already realized starting in Q2.
Speaker Change: Thank you. My last question is just on the AAR, which which people have talked about but I think it's always interesting to see what the size of the opportunity is and I think.
Speaker Change: If you can get to that 65 days, where the company had been in the past and I think you were in the <unk> for a lot of 'twenty three.
Speaker Change: But if you can get to 65 days, there's like $15 million of cash that you can free up.
Speaker Change: I know that you believe that you can see an improvement into Q2.
Speaker Change: Thank you.
Speaker Change: What is again what is it going to stop you from getting to 65 days at some point because.
Speaker Change: Where you are with your debt agreement.
Speaker Change: Just created.
A little bit of an increased cost until you can start to get.
Speaker Change: I'll get back to these new rates that you'd agreed to in December.
Speaker Change: Yes, I think the only thing that would really stop us as we've talked about this we are dealing with larger and larger clients right, where we may not have as much leverages, we'd like but the flip side of that as we continue to bring on new clients at a much better return so as we're continue to those.
Speaker Change: Our clients are a larger percentage of the overall business.
Speaker Change: Given any other initiatives or changes those we should be able to get back to that.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question is coming from Aaron Smith <unk> from Craig Hallum. Your line is live.
Speaker Change: Okay.
Aaron Smith: Yeah, Hi, again, I apologize I'm kind of juggling multiple calls so obviously most of the questions I had were asked there.
Aaron Smith: One on optimizing the new business.
Aaron Smith: Sorry, you kind of called out the impact in the first quarter just wanted to understand how youre thinking margins can improve as we move through the year on that front and just.
Aaron Smith: Focus if you will.
Aaron Smith: Further new business and kind of shortening that time period.
Aaron Smith: So yes, we've got a number a number of initiatives underway both too.
Aaron Smith: Improve the current gross profit for existing customers.
Aaron Smith: As well as adding new customers.
Aaron Smith: Other other initiatives are obviously to reduce SG&A.
Aaron Smith: So we have three guiding lights, right now and that is improving EBITDA.
Aaron Smith: Improving cash flow and paying down debt. So all of the initiatives that we have underway right now are contributing to either improved EBITDA or gross profit and there is.
Aaron Smith: A number of air and Theres a number of these projects in flight right now so I prefer not to get involved in each of them but.
Aaron Smith: Kind of at the high level, we have major projects in.
Aaron Smith: Source sourcing to contract we have major projects involved in procure to pay and then.
Aaron Smith: Then we've got significant work being done in order to cash. So those are I mean, if you really looked at our workflow and summed up in three kind of big buckets those are them.
Aaron Smith: We're keenly focused on all three and we do expect them to contribute to improved GP and EBITDA.
Aaron Smith: Alright understood I appreciate the color and for taking the questions. Thanks.
Aaron Smith: Well.
Speaker Change: Thank you and once again, everyone. If you have any questions or comments. Please press Star then one on your phone. Your next question comes from George Melas from MGH Management. Your line is live.
Aaron Smith: Thank you.
Speaker Change: Good afternoon.
Aaron Smith: I have a follow up question on the receivables.
Aaron Smith: Roughly at 85 days.
Aaron Smith: I'm just wondering.
Aaron Smith: When youre cardtronics spell out with customers because I doubt that they are.
Aaron Smith: I imagine most of your customers are.
Aaron Smith: You have 30, or 60 day abatements with them. So I'm just trying to understand how it could be 85, and you have a customer contracts, where you have 90 day terms.
Brett Perry: Hey, George this is Brett I'll take that.
Speaker Change: Certainly our terms range client to client, it's tough to pin down or talk about any specific.
Speaker Change: But going back to the comments around improving.
Speaker Change: The billing rates billing faster, that's that's tied up outside the clock hasn't started with those clients yet theres still accrued revenue, we need to get we need to get them build out faster. So that we can start the clock on the actual terms with the clients.
Speaker Change: So that accrued piece is what we're intently focused on because we see that as the most near term opportunity.
Speaker Change: So unlock some cash.
Speaker Change: Okay. Okay.
Speaker Change: Do you have a sense of how quickly you actually build customers.
Speaker Change: 15 days or 20 days and it takes you from the date of service to build a customer.
Speaker Change: Yes, it's hard.
Speaker Change: It's so client driven on the billing side it depends some of its contractually on when we can when we can bill.
Speaker Change: All of it's based on what you know how much of a percentage.
Speaker Change: Of our clients.
Speaker Change: Billings are dependent on volumes that we have to get from our vendors. So there is there is a lot in there, but we're certainly as part of these initiatives and part of this performance culture.
Speaker Change: Measuring these things on a on a day to day basis weekly basis, setting thresholds and making improvements and one by one.
Speaker Change: Okay, Okay and then thank.
Speaker Change: Thank you for providing some clarity on the revenue change.
Speaker Change: Changes to the attrition and the lower volume.
Speaker Change: If we take if we do something very very simple math. The revenue is roughly down 4 million year over year, and the attrition and the lower volume as well.
Speaker Change: So it means that you added $11 million in revenue.
Speaker Change: Roughly how much of that existing customers versus those that you added so I should say customers pre 2024 versus those that you added in 2024 I imagine the ones you added the lion's share of that but I'm not sure 100%, yes, youre right the majority.
Speaker Change: Pretty of that new clients added.
Speaker Change: Throughout 2024.
Speaker Change: Okay, Great and then one quick final question.
Speaker Change: Those clients added in 2024, I think they came in slightly lower gross margin because.
Speaker Change: The company had so there's some confidence that OLED time, you can increase those gross margins.
Speaker Change: Lee.
Speaker Change: It can be somewhat miscalculate, there a little bit.
Speaker Change: <unk> customers at <unk>.
Speaker Change: And then we will see lower initial gross margin or <unk>.
Speaker Change: Yes.
Speaker Change: Maybe I just got the wrong narrow thats on that.
Speaker Change: Yes, I wouldn't say we miscalculated.
Speaker Change: At all some of these just have a longer tail. It is.
Speaker Change: You missed the the buildup of previous clients that we've had that we've matured now and where they were brought in.
Speaker Change: But we look at this on an individual case by case basis, when we sign off on these deals.
Speaker Change: We have a pretty robust pricing committee.
Speaker Change: Process that everything goes through.
Speaker Change: And we certainly always keep in mind, what the long term potential of these clients are sometimes those take a little bit longer sometimes those additional locations.
Speaker Change: Have to come up for contract again.
Speaker Change: Some of the services as well so they can just.
Speaker Change: It's largely client by client, but yes.
Speaker Change: Yes, some of these have taken a little bit longer to ramp up.
Speaker Change: George.
Speaker Change: We haven't really I don't I don't think we overestimated.
Speaker Change: To maximize the margin in this business it can take several quarters, but I can tell you and reassure you that we are working very aggressively with our hauling partners.
Speaker Change: To deliver incremental value to our customers, which will expand margins, but it does it does take a few quarters to fully optimize those new customers.
Speaker Change: Okay great.
Speaker Change: You bet.
Speaker Change: Energy and enthusiasm thank you very much.
Speaker Change: Youre welcome.
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.