QRHC earnings call transcript, November 5, 2026

And thank you everyone for joining us for Quest Resources third quarter 2026 earnings call. Before we begin, I'd like to remind everyone that this conference call may contain predictions, estimates and other. looking statements regarding future events or future performance of the company. 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 the company's current expectations, estimates, projections, beliefs, and assumptions and involve significant risks and uncertainties. Actual events for the company's 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 the company's filings with the securities. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward looking statements are presented as of the date made and the company undertakes no obligation to update such statements unless required by law to do so. In addition, this call may include industry and market data and other statistical information as well as the company's observations and views about industry conditions and developments. The data and information are based on the company's estimates, independent publications, government publications, and reports by market research firms.

and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information. Certain non-GAAP financial measures will be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future, unless it is stated otherwise. 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. With that, I'd like to turn the call over to Perry Moss, Chief Executive Officer.

Thanks, everyone, for joining this afternoon. Our third quarter results reflect the progress we've been making in building a more balanced and diversified business. Improved performance across our broader portfolio, combined with the continued benefits of our operational excellence initiatives, drove adjusted EBITDA growth both security. Sequentially and compared to the prior year. While revenue was relatively flat, gross profit increased sequentially and flowed through to the bottom line. I'm incredibly proud of the entire Quest team for staying focused on what we can control. We're pleased with the quarter and we'll stay disciplined. as we move into a seasonally softer period. Through the first half of the year, our progress came from two sources, stabilizing volumes within our industrial portfolio and growing contributions from new customer wins and wallet share expansions, many of them outside the industrial sector. In the third quarter, our performance was more balanced. Industrial revenue softened modestly, which led to the slight sequential decline in total revenue, but we saw meaningful margin improvement with several of our industrial customers. Meanwhile, the non-industrial portion of our portfolio grew sequentially and continues to perform across markets like food service, retail, hospitality, and more. That's exactly the type of balance our diversification strategy is designed to deliver, and it is encouraging to see it in our results.

During the quarter, we renewed contracts with four customers. These renewals reflect the value we deliver and the trust we've built, and those relationships make it easier to grow with our customers and continue to expand share of wallet across the portfolio. Over the past year, we've also onboarded several new customers outside the industrial sector. As those accounts and our recent wallet share expansions mature, they contribute to both revenue and margin. We are optimistic about our sales pipeline and trends so far in October have been consistent with our expectations. Several of our discussions with large national brands are now well advanced. A number of them in markets where Quest doesn't operate today and winning them would add another counterweight to industrial seasonality. Adding brands of this caliber would also bring additional credibility in the market. As we pursue other national accounts, while the timing of the conversion is difficult to predict, we believe our value is being recognized more broadly than ever. Gross margin was 17.8% in the quarter, a meaningful step up from the second quarter. This improved was driven by ongoing optimization of our service network, disciplined pricing, and maturing margins from recently onboarded accounts, and several of our industrial customers contributed to it. Compared to the prior year, gross margin was down slightly from 18.1%, reflecting more

margin pressure from certain industrial customers that was partially offset by improvements across the rest of the business. We believe the drivers behind our sequential improvement can be sustained, and we'll keep working to build on them. Operationally, we continue to execute well, and our operational operations.

Thank you very much.

Our operational excellence initiatives are delivering real results across the business. Brett and his team continue to do a terrific job optimizing our cost structure and improving our cash cycle, and he'll walk through those details shortly. On the cost side, diesel prices remain elevated amid ongoing geopolitics. Political events, but the impact on our results has been limited to date. While we've seen attempts to push through surcharges, we've been successful at fighting them on behalf of our customers. As a reminder, our contract structure continues to allow us to pass through certain costs where needed. Having made significant progress building a more efficient operating foundation, we are now investing in our team and capabilities to capture the opportunities in front of us. We recently welcomed Vignesh Lal as our Senior Vice President of Technology. Vignesh is... is a proven technology leader who already knows our business well and we're thrilled to have him on the team. We're excited about what this addition will bring as we continue to enhance our technology platform and the data capabilities we deliver to our clients and strengthening our ability to scale as we add larger... ...national accounts. Looking ahead, we remain cautiously optimistic about our customer portfolio, though we're mindful of the typical fourth quarter seasonality, which is most pronounced within our industrial base. We believe the continued growth and diversification of our non-industrial...

...business will help counterbalance these dynamics. As we head into the fourth quarter, we'll stay focused on converting our pipeline into new wins, expanding share wallet with existing customers, building on this quarter's margin gains, and continuing to strengthen cash... ...the next generation, and our balance sheet. With that, I'd like to turn the call over to Brett to review our third quarter financial results in greater detail. Thanks, Perry, and good afternoon, everyone. $63.8 million.

to the fourth quarter, we would anticipate gross profit and margin to be up solidly compared to the prior year. However, it is a good time to remind everyone that our business does experience seasonality in Q4. So, sequentially, revenue and gross profit will decline. However, we will be- well positioned entering 2027 as we build off the momentum gained in 2026. Over time, we'll continue to support our margin profile by focusing on what we can control. Growing in non-industrial markets. Optimizing service levels across the portfolio. Winning incremental wallet share with existing customers. And executing our land and expand strategy to grow margin levels at recently onboarded accounts. Moving on to SG&A, which came in at $8.5 million, amounting to an 8% reduction compared to the prior year. The year-over-year decrease was driven by lower bad debt expense and facility rent, as well as the accumulation of cost-savings initiatives across multiple departments. On a sequential basis, SG&A was up modestly from the second quarter, primarily due to higher business expenses. during the period. Year-to-date, SG&A is down 16% compared to the prior year, which amounts to almost $5 million in cost reductions as we have right-sized the business and improved operating leverage. Looking forward, we do expect that total SG&A will likely be up. Slightly next year as we begin to reinvest in growth, but we expect to offset much of that through additional efficiencies and new business wins, which will demonstrate improvements to our operating leverage.

Gap net loss for the quarter was $0.5 million, an improvement from a net loss of $1.5 million. We adjusted EBITDA with $3.4 million, up from $2.9 million in the third quarter of 2025 and $2.8 million in the second quarter, reflecting the strong flow through of our sequential profit gains. Moving on to a review of the cash flows and balance sheet. We ended the quarter with approximately $1 million in cash and approximately $17.4 million in availability on our ABL credit facility. Cash used in operating activities was $0.3 million as of the third quarter of 2021. With the timing of collections with a few specific clients impacting the quarter. Year-to-date, we have generated $4.4 million of operating cash flow, which we have used to reduce the balance of our higher interest term debt by approximately the same $4.4 million. Debt reduction. Remains a key priority, and with interest expense already down roughly 9% year-to-date, each payment further improves our cash generation in the future. Our DSOs finished the quarter at roughly 71, essentially flat with the second quarter, and our working capital days were also flat sequentially. During the quarter, we worked through three unique and short-term collection challenges with a few specific clients, including one large client that solved temporary payment interruptions as it brought its payment processing in-house. All of these three issues have since been resolved, however, for the quarter, they led to a

brief pause in our progress towards our previously stated target for DSO and largely masked the additional improvements in billing efficiencies and collection gains that were made across the rest of the portfolio. To reiterate, we remain confident in our path to our near-term DSO target of the mid-60s. Overall, as Perry noted, we are encouraged by the more balanced performance across our portfolio. The organic initiatives we've taken to diversify the business and increase productivity across the organization are driving improved profitability, even as volumes from the industrial portion of the portfolio. remain uneven. Our financial priorities are unchanged, investing in our talent and growth opportunities, optimizing our cost structure, leveraging our operational excellence initiative to drive cash flow, and paying down debt. On the cash cycle, we were able to quickly resolve the one-time issues, and we have already moved past this quarter's timing headwinds. We believe that positions us for stronger cash generation and further debt reduction as we close out the year and head into 2027. With that, I'll turn the call back over to Perry for some closing comments.

The first question is from...

Aaron, Sky Park, South Krala, with Craig Hallam. Please go ahead.

Thanks for taking the questions.

Maybe first, just on the pipeline, so it sounds like continued confidence, just tough to call timing, but some opportunities late. stage. Qs, maybe give a little bit more detail. You kind of talked about some new markets. Anything you can share there as you look to further diversify the end markets in the business? Sure. I'll address that one, Aaron. So, you know, we're talking. about some late stage large national brands. And these are these large national brands are certainly a bit more complex to sell through. So, you know, when I when I refer to late stage, we are it's about as late as we can get. And I don't want to get ahead of myself, but we, you know, we feel very confident and bullish about some of these opportunities that essentially are right on the goal line. I, you know, I can't predict when they'll convert and I wouldn't attempt to. But, you know, we are we're right where we. expect to be. And, you know, hopefully we'll we'll be able to at least make some announcements next next quarter. All right. And, you know, any details you can give on, you know, where some of these end markets might be. Or, you know, just curious if there's any other color there. Yeah. So, you know, it's consistent with our strategy to continue to diversify our portfolio. You know, I don't want to get too specific, but they're they're in non-industrial sectors. And, you know, as we. Have said we're focused on retail, food service, hospitality, restaurants, transportation and logistics. So it's in it. They're all within those four categories. OK, great. Thanks. And then on some of the contract renewals, you know.

Any any kind of wallet share gains that that are noteworthy there and, you know, didn't hear anything, but any, you know, any concessions or kind of customer attrition that that you might have seen there or anything? Yeah. I mean, we obviously we don't we don't get specific. On contract terms, but these I will tell you the renewals did not did not come with concessions. So, you know, we felt very good about it. What I think it reflected is the confidence that these customers have both on our service execution and our model. And, and we, you know, we continue to, to grow the business through share wallet opportunities. I didn't mention any this quarter. We didn't, you know, it's a timing issue. We didn't really close any, what I would consider significant share wallet in Q3. While we did have some smaller opportunities, you know, added to the book of business, I won't mention every single share wallet opportunity because some of them are not material, but they reflect the confidence that our customers have in our, in our service. execution. So, um, you know, like the new sales pipeline, the share wallet pipeline is also, um, uh, looking really healthy. Great. Um, good.

Thanks for that color.

And then on, on the margin gains you saw in industrial. Can you just talk about some of the drivers behind that and, and, you know, initiatives you have there where, where you're at with some of those? Yeah.

I'll, I'll take that one. So as a reminder, we, what, what I think we were most excited about with the quarter is, is not just the gains in the industrial side. We really. We saw broad based gains on margin across the portfolio. So that came with some increased pricing, but through better efficiencies gained and some improvements on the vendor network side as well. So it was really broad based. Some of those industrial volumes are just the timing of bringing on additional performances to those clients, and we've talked about that in previous quarters that we would expect to see some margin improvements overall with those. So, you know. You know, just like Perry talked, it's just about executing what we've committed to. Good.

Thanks for the color.

I'll turn it over.

The next question is from Jerry Sweeney.

Rock Capital, please go ahead.

This is now concluded.