Quest Resource Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 9 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Quest Resource Holding Corp. 3rd Quarter 2023 Earnings Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity to ask I would now like to turn the conference over to Dave Mossberg, Investor Relations representative. Please go ahead.

Speaker 1

Thank you, Gaylene. This is Dave Mossberg. Your line is cutting out a little bit. So I'm going to go ahead and get started. Maybe you'll let me know if we I want to thank everyone for joining the call.

Speaker 1

Before we begin, I'd like to remind everyone that this conference call may contain predictions, and other forward looking statements regarding future events or future performance of Quest, use of words like anticipate, project, Estimate, expect, intend, believe and other similar expressions are intended to identify those forward looking statements. Such forward looking statements are based on Quest's current expectations, estimates, projections, beliefs and assumptions and involve significant risks and uncertainties. Actual events or Quest'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 and 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's 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.

Speaker 1

In addition, in this call, we may include industry and market data and other statistical information as well as Quest's observations and views about industry conditions and developments. The data and information are based on Quest's estimates, liable and the data and other information are accurate, be cautioned 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's current performance. Management believes the presentation of these non GAAP financial measures is useful to investors' understanding of the assessment of the company's ongoing core operations and prospects for the future.

Speaker 1

Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non GAAP basis. Full reconciliation of non GAAP to GAAP financial measures are included in today's earnings release. With all that said, I'll now turn the call over to Ray Hatch, President and Chief Executive Officer.

Speaker 2

Thank you, Dave, and thanks everyone for your interest in Quest. I want to start off by emphasizing how excited I am about what lies ahead for Quest in the next several years. We've made significant strides in laying the foundation for growth and earnings. This year, we've made a lot of positive progress building our growth engine and investing in technology to drive efficiencies to support that growth. In recent months, we've seen a noticeable uptick of the number and the size of opportunities in our pipeline.

Speaker 2

And we've seen faster than anticipated ramp up at one of our largest new customers. We also have a robust outlook for growth. In addition, at the end of the third quarter, we the systems integration of RWS. We uncovered isolated issues related to RWS legacy systems, which resulted in cost of sales adjustments, mostly related to the activity prior to 2023. This is the primary cause of gross profit dollars from RWS being approximately $800,000 below our And we've taken action to realize approximately $1,700,000 in annualized SG and A cost savings beginning in Q4 of this year.

Speaker 2

In addition, we're bringing online several technology enhancements to our platform. We expect these enhancements to improve efficiency, Scalability and continuously improve our client value proposition. In summary, I am more excited than ever with the underlying strength and the foundation of our business. I'm looking forward to realizing the resulting bottom line improvements from our investments in the platform. I'll now turn the call over to our CFO, Brett Johnson for a financial overview.

Speaker 2

I'll be back soon to discuss progress on our strategies.

Speaker 3

Thanks, Ray, and good afternoon, everyone. A quick note about the sequential decrease in revenue. It was primarily related Commodity price fluctuations and normal quarterly volume fluctuations. As discussed on previous calls, Commodity price fluctuations have not historically had material effects on gross profit dollars. Our customer agreements produce Consistent gross profit dollars based on volumes that are not tied to commodity price fluctuations.

Speaker 3

For those of you new to the story, this is the reason we use gross dollars is a key metric to measure financial performance. During the Q3, gross profit dollars were $12,400,000 An increase of 2% versus the Q3 last year and a $1,100,000 sequential decrease from 2nd quarter. The sequential decrease primarily reflected $800,000 from the underperformance of RWS. To a lesser extent, sequential comparisons were affected by decreased contribution from an RWS client that has been acquired by another company. That company that acquired this RWS client manages waste disposal internally and decided to manage the RWS client similarly.

Speaker 3

As part of the process of fully integrating RWS onto our platform, We have gained efficiencies and have been able to reduce headcount and cut operating costs at RWS. We anticipate Approximately $1,700,000 in annualized cost savings beginning in the Q4 of this year. Sequential comparisons during the Q3 were also affected by a billing adjustment of approximately $400,000 from a quickly ramping new customer. While it did affect 3rd quarter results, it represents a very small percentage of this client's total billings, and we maintain a strong relationship with this client. In fact, excluding this adjustment, the contribution from this client grew during the Q3 and continues to ramp in the 4th.

Speaker 3

Looking to the 4th quarter, we expect gross profit dollars to increase sequentially from 3rd quarter and expect our performance to be more in line with our performance in the Q2. We expect our growth in the quarter will ramp and will mostly offset typical 4th quarter seasonality. In addition, we will benefit from the cost cutting at RWS and overall efficiency gains beginning in Q4. Moving on to SG and A expenses, which were $9,600,000 during the 3rd quarter compared to $9,300,000 during the same period last year and in line with our expectations. Looking forward, We expect lower integration costs and we expect to gain efficiencies from the investments we have made in our platform.

Speaker 3

We plan to continue to reinvest these savings into growth initiatives that further improve efficiencies and increase our ability to bring value to our clients. As a result, we expect SG and A expenses will be about $9,500,000 in the 4th quarter. Going forward, we expect to begin to see the steady benefits of both cost reductions at RWS and investments in technology and process improvements, which will lower our costs and improve ongoing operating efficiencies. As gross profit dollars increase, we expect operating expenses to grow at a slower pace as we deliver improving operating leverage in the quarters to come. During the Q3, depreciation and amortization was $2,300,000 which was relatively flat with the prior year.

Speaker 3

Moving on to a review of the cash flow and balance sheet. We are in good shape liquidity wise and continue to enhance our liquidity. In this high interest rate environment, We have been actively looking to reduce interest expense by optimizing cash management, carrying less cash and minimizing our borrowings On the line of credit, our cash balance was $870,000 at the end of this quarter and we have 5 $400,000 drawn on our $25,000,000 operating borrowing line. This compares to $12,200,000 at the beginning of the year. We will continue to evaluate our overall leverage and ways to reduce our overall interest expense.

Speaker 3

Year to date, we produced $6,600,000 in operating cash flow and 3rd quarter marked our 4th straight quarter of positive operating cash flow. At the end of the quarter, we had $56,800,000 in notes payable versus $70,600,000 at the beginning of the year. To summarize, this represents a $14,000,000 reduction in long term debt year to date, which included $7,000,000 of voluntary term loan prepayments. The balance of the reduction reflects normal principal payments and a lower borrowing on our asset baseline with PMC. Through our cash management efforts and the reduction in borrowings, we

Speaker 2

Thank you, Brad. While the cleanup adjustments for RWF have been frustrating and have made our quarterly comparisons challenging. I want to emphasize the conviction on our trajectory and the overall outlook for the company. We've made tremendous progress during the last several years and are as confident as ever about our outlook for continued double digit growth over the next several years. We are now running all of our business on a common platform.

Speaker 2

Through our integration efforts and other actions, we've been able to lower headcount and can now begin to realize greater efficiencies from these acquired operations. As I said earlier, we'll recognize Approximately $1,700,000 in annualized savings from RWS in the 4th quarter. In addition, we expect to continue to lower overall operating And drive efficiencies across the operating platform. Let me make a brief comment about the macro environment and concerns over inflation and economic uncertainty. During the Q3, we continued to see stable activity across our end markets.

Speaker 2

We managed cost pressures and fluctuation in the price of recycled materials as well. The waste business is generally resistant to recessions and our clients continue to generate waste during the top and the bottom of the cycle. We also have compelling and differentiated value propositions, which create strong client relationships that endure during periods of economic weakness. Through our value add, we strive to have long term strategic relationships with our customers and not have relationships that are transactional in nature. To illustrate that point, we recently reviewed the longevity of our top 20 clients and noticed the average engagement request was over 9 years.

Speaker 2

We also recently signed a new 5 year extension and expansion agreement with 1 of our largest and longest standing clients. While our core business is strong, the one area where economic uncertainty has been affecting us has been the pace of adding new business, which is slower And we would have liked over this past year. For the portion of our new clients, the onboarding ramp has been slower than expected. With certain clients, waste disposal is managed at a local level and in several of those cases, it's taken longer than we expected to roll out our programs approved by and being driven by the corporate level. We also have several large opportunities that are taking longer than expected to get signed.

Speaker 2

Anecdotally, these clients and prospects are telling us they believe strongly in our programs, but in some cases, other priorities have simply pushed back implementations. We don't have prospects falling out. They're just not moving as quickly as we anticipated. I would also note that this is not the case across the board And we're winning new business and we're still seeing growth from existing clients. Moving on to a discussion about growth.

Speaker 2

I feel very good about the organic growth we have in front of us. We have multiple sources of growth that give us confidence in our ability to post double digit gains and gross profit over the next several years. We expect growth to come from onboarding activities of recent wins. In some cases, it can take 12 months to 18 months To fully ramp clients, there are several new clients that are still in the process of ramping, which will provide embedded growth for the least the next year. While the pace of onboarding has been slower than we would like with some clients, we have others that are accelerating the deployment of our programs.

Speaker 2

As we discussed last quarter, we began on boarding a new client during September at a small portion of their 380 locations. In a short period of time, this client has validated our value proposition and is now asking to roll out services to all their locations faster than we had originally inspected. In addition, we're being asked to handle a broader line of services than we had previously planned. With the acceleration of the rollout, We expect this could turn into an 8 figure revenue contributor closer to the end or to the shorter end of our 12 to 18 month timeframe. I should reiterate that this is a new end market vertical for us.

Speaker 2

There are a few large potential clients in this end market and we are pursuing peers in this space. The services we provide for this client will have some overlap with our capabilities and existing waste streams, but also give us the scale required to add capabilities for new waste streams and we will in turn introduce to other new clients. Regarding new business, during the quarter, we had a win in a new automotive service client with a rapidly growing base of 50 locations. We expect this client to generate 7 figures revenue at maturity. In addition, during the Q3, We had significant wins with existing clients in the retail, automotive and restaurant end markets.

Speaker 2

Our land and expand strategy has consistently delivered Solid growth from our existing client base for the last 5 years and we feel there's ample opportunities for continued growth from our existing clients for multiple years to come. We're making new investments in our sales force, which should also provide a driver for growth. On the last call, we spoke about adding a proven new sales leader. In addition, we are adding investments in sales operations that will allow our sales folks to spend more time on closing and less time on more administrative functions such as Proposals and lead generation. In addition, we're looking to shorten the sales cycle by simplifying our contracts and using our new sourcing tool to turnaround proposals much more quickly.

Speaker 2

Our new sourcing tool allows our staff to look across the entire footprint of vendors qualification and pricing data. This tool reduces the time our staff needs to find optimal solution from days to minutes. These investments in sales should help us grow our pipeline, shorten the sales cycle and create a better yield in converting proposals into agreements going forward. Another source of growth will come from our growing pipeline of opportunities. As we said in the release, in recent months, we've seen a noticeable uptick and the number and the size of the opportunities in our pipeline.

Speaker 2

There are several factors that are likely driving the improvement. The single biggest reason is related to Successful in adding new clients and it's been much easier to open the discussion with potential clients. I hesitate to estimate when or if these deals may close, But I can say several very large opportunities have progressed to the final stages of approval and I'm confident we'll be able to add several new clients in the coming quarters. I also want to reiterate that we have a large opportunity to drive gross profit dollar growth and on the cost side by optimizing the business we have in hand. Over the last 3 years, we've more than doubled the size of our business, with about 2 thirds of that growth coming from acquisitions And new clients.

Speaker 2

As we bring revenue onto our platform, we've proven our ability to optimize the cost of services through vendor relations and procurement management that drives our continued growth and gross profit dollars. Before I move to our outlook, I want to talk a little bit about the investment we're making in technology. Over the years, we built a technology platform that will be able to scale to the size of a much larger enterprise. Technology platform we've built has been the key deciding factor for several competitive wins and helped us maintain enduring client relationships due to the incremental value we provide. In recent years, we've stepped up investments in our technology platform so we can stay ahead And continuously improve client value, efficiency and scalability.

Speaker 2

We intend to introduce our new technology improvements during the first half of next year. These improvements will enable us to further automate and lower cost to process invoices and provide a major enhancement to our ability to scale. For example, this will allow us to further automate the processing of vendor invoices and achieve significant cost savings and margin improvements. Based on the progress regarding our outlook, based on the progress we've made, I'm extremely encouraged with the underlying strength of our business and the ability to generate profitable growth. We expect to end the year strong with sequential improvement in both gross profit dollars and EBITDA.

Speaker 2

We expect to be a strong cash flow generator in the year of 2023. We have multiple sources of organic growth. We will continue to drive operating efficiencies and to invest in capabilities. Pressure to improve sustainability, increasing regulation and increasing cost continue to lower the bar for adoption of our recycling services. We have a tremendous white space of opportunity And we're very optimistic that we will continue with positive momentum over the next several years.

Speaker 2

I look forward to keeping you updated on our progress. We'd like now for the operator to provide instructions on how listeners can queue up for questions. Operator?

Operator

Thank you. We will now begin the question and answer session. Our first question is from Arun Pachala with Craig Hallum. Please go ahead.

Speaker 4

Yes. Good afternoon, Ray and Brett. Thanks for taking the questions. Hi, Aaron. Hi.

Speaker 4

Maybe first for me, you kind of touched on it a little bit, but just with the uptake in kind of number and size of deals in the pipeline, It sounds like it's pretty broad based, but can you just talk about some of the drivers behind that and any areas or end markets in particular?

Speaker 2

Actually there are several end markets, Aaron.

Speaker 1

Thanks for your

Speaker 2

questions. Industrial continues to be a real opportunity for us And there's some opportunities in retail as well. I think I mentioned in the remarks, referenceable clients has helped us quite a bit. But We've had a lot of work going on and prospecting is starting to come to fruition. So, the focus That our leadership team on the sales side has, I'm putting a lot of great new prospects in the top, it's starting to prove out and we're excited about that.

Speaker 4

All right, good. Thanks for that. And then maybe just on the food waste and programics, Seeing numerous states start to implement kind of reduction goals on the food side and penalties Starting kind of early in 2024. Can you just give us an update there on where conversations stand with customers and how you see this business contributing to Growth going forward?

Speaker 2

Yes, sure. And you're absolutely right, Aaron. Food waste continues to be an area of focus and it continues to be Probably the biggest opportunity or target for diversion from landfills. We have some great in that space today and we have some tremendous prospects that we're talking to as well. And to be honest with you, a lot in many cases grocers We're really starting to look at opportunities to do more diversion they did in the past based on those pressures that you're just referencing Aaron.

Speaker 2

So I encourage more and more regulation and pressures. It speeds up the sales process and we're encouraged by that. All right. Thanks for taking

Speaker 4

the questions. I'll turn it over. Thanks, Aaron.

Operator

The next question is from Gerry Sweeney with Roth Capital. Please go ahead.

Speaker 5

Hey, Ray, Brett. Thanks for taking my call.

Speaker 2

Hey, Jerry.

Speaker 5

Going back to The RWS and then I think the $400,000 charge for the ramp up, Two different issues, but maybe looking at root cause. Is there any concern about processing systems, etcetera, That you have to take a look at to make sure this doesn't happen again or how do we look at any of the mitigation strategies around this?

Speaker 3

Hey, this is Brett. I'll take that question. Starting with RWS, I wouldn't call these Broad based, they were really isolated to 2 specific issues that were difficult to identify. We've done a lot to work on our visibility within RWS before we brought them into our current environment, but we still had a few gaps there. These popped up as we went live in the new systems.

Speaker 3

And so we feel confident with the processes we have in place, Being in our environment managed through our accounting teams and our operational teams that we've got much better visibility and consistency as we look Pat, more of the recent numbers as we've gone live. And then to your other question on the quickly ramping customer, it's Again, it's a fairly large customer. It's really a very small percentage overall, not systems related, Not really a process. It was just an error that was made, and it was over a longer period of time that it was missed And we had a true up and these things happen sometimes. And I don't want to diminish it.

Speaker 3

We're working on We don't want any, but we certainly don't see any broader based concerns on these types of things.

Speaker 5

Got it. Was the RWS in the was the issue in the 3rd quarter or was that a lingering issue from over time over the last couple of quarters as you had integrated it? Yes. It was a lingering

Speaker 3

issue. As we stated, most of it was related Prior to 2023. So kind of sitting in there and even most of that was non cash.

Speaker 2

Got it. And then on the

Speaker 5

sales cycle, it seems like some areas taking longer. I'm just curious if there's any industries that are moving, Maybe the ramp up is going faster than you anticipated and some are slower. And in particular, maybe if you have a lot of Referenceable accounts in one industry, is that sales cycle sort of faster than an industry where you have less referenceable

Speaker 2

Yes, referenceable customers definitely help speed up the process, Jerry. There's no question. It's almost like a due diligence that doesn't have to be performed by the prospect. So I don't think there's an industry specific delay or improvement or end market specific, I mean. I think it depends on Where the prospect is and their decision cycle and how they do it.

Speaker 2

Some of them are more complex than others. Some of them have A ridiculously long, frankly, sign off process that goes through numerous departments. Some of them are much more Quicker than that. But I guess what I'm saying is, is I don't see that as in market specific. It's more company culture specific And how quickly to make decisions?

Speaker 5

In some very large companies, sometimes these opportunities for signing going to come up every Over the course of 1 year or cycle, is that also part of it is just the way these companies manage the Yes. Outsourcing and services, is that also a way of looking at it?

Speaker 2

If your question was larger companies, Jerry, they take longer, is that what you're saying? I couldn't hear you very clearly.

Speaker 5

Yes, it's actually, yes.

Speaker 2

Okay. Yes, Well, it goes back to complexity, right? The larger the company, the more locations, the more waste streams typically, the more Well, bureaucracy, I guess, it exists. So there is a pattern based on the size of the companies that larger companies take longer. No question.

Speaker 5

Yes. Final question and then I'll jump back to you. Any competition popping up? Obviously, I mean, you mentioned one client that went away, That was internalized, right? Completely understandable.

Speaker 5

But just curious if you're seeing any competition even on the fringes or what's happening out there on that landscape?

Speaker 2

We talk about that quite a bit, Jerry. And no, as you mentioned, just I appreciate you reiterating that. That lost client we talked about was strictly they were acquired by somebody else and they took it internally. So it didn't have anything to do with us. And I should mention, I guess, that we have situations where our clients are buying other companies and we get growth out of it too.

Speaker 2

So it happens both ways. But competitively, I haven't seen a lot of changes. I've been watching to see as our price points going down, aggressiveness, That type of thing, with economic conditions changing. And I really don't we really haven't seen anything to that effect. It's a very competitive industry, as you know.

Speaker 2

I think it's pretty much stayed the same. I haven't seen a lot of changes.

Speaker 5

Got it.

Operator

The next question is from Samir Joshi with H. C. Wainwright, please go ahead.

Speaker 6

Hey, good afternoon guys. Thanks for taking my questions. Sure. Just on RWS, it seems that the revenue loss also played into this quarter. It seems $6,000,000 less than year over year growth here.

Speaker 6

Is there any reason for that lost revenue or Can you just shed some light on that?

Speaker 3

Yes. I'll take a little bit of that. So We've certainly we've got the commodities that run through that business as well. So I'd say a portion of that It's certainly related to reductions in just overall commodity values. We did talk about the lost customer.

Speaker 3

So We got a portion of that in the quarter as well. And then, the rest is Probably related to some of the adjustments that were made throughout last year as well.

Speaker 6

Okay. Some of my other questions have been answered, but just checking on, I think on the last call, you mentioned double digit growth in gross profit and dollars and in adjusted EBITDA For 2023, are we still on track for that?

Speaker 2

Yes. I mean, if you take out the exceptions that I think Brett did a really good job of laying out, I mean, we're there. But we're looking to continue that. The outlook is strong going

Speaker 7

forward, definitely strong going forward in future quarters.

Speaker 6

And then the last one, was there any further principal payments So I made to Monroe. I think in the last quarter around $2,000,000 was prepaid.

Speaker 3

No, we did not make another one subsequent to this quarter. We did talk at the end or In our Q2 earnings call that we had made 1 subsequent. So we did have a payment of $2,000,000 within the quarter, but We talked about that one as being a subsequent transaction to Q2. Understood.

Speaker 6

Thanks for that clarification. Thanks for taking my questions.

Speaker 2

Thanks Sameer.

Operator

The next question is from Greg Kidd with Pinnacle Fund. Please go ahead.

Speaker 7

Hi, Ray and Brett. How are you?

Speaker 5

Great. How are you, Greg?

Speaker 7

Good. I wanted to ask a question about Brett's commentary. It sounds if I got what Brett said correct, I think that Brett said he expects sequential gross profit increase in the 4th quarter and expect Something similar to Q2. And so Q2 gross profit was 13.5% is the right way to interpret That statement that you think Q4 is around 13.5?

Speaker 3

I think that's kind of our baseline for just overall We've talked about we've got some opportunities and some growth coming in as well. In Q4 of last year, we talked about some cyclicality or some seasonality that came in. That can really vary customer by customer. So there's a we don't have full visibility on how that's going to impact Q4, but just in terms of strength of business, we certainly look at Q2 as being much more reflective Of the continued sequential performance, and you can get there basically with the adjustments we talked about, Gets us really closely in line with Q2.

Speaker 7

Thank you. And I wanted to make sure that I understood How much of the adjustment was to gross profit in the quarter? I think that you highlighted $500,000 of RWS Was a gross profit impact and then was the $400,000 impact with the one Fast growing customer, was that also a gross profit impact? So was it $900,000 reduction to gross profit or was it More.

Speaker 3

No, that's yes, that's correct. It's about a $900,000 adjustment to gross profit that we took in Q3.

Speaker 7

Okay, great. And so then, getting close to double digit gross profit growth For the year, if you add back $900,000 and do around $13,500,000 of gross profit for the 4th quarter, But maybe a little less this year is kind of how that looks to me. And so I but I do hear you talking about your confidence in getting double digit growth going forward and you talked about Some of it, just a lot of different areas in which you can attain it. And so I would appreciate if you can help us understand How much of that do you think is coming from your existing customers like wins that are already in hand? How much of it is coming from Just optimization, which you touched on.

Speaker 7

And then how much is there like a go get where you need to go get $1,000,000 of gross profit To get to 10% or do you think that it's kind of already in hand?

Speaker 2

I would say, That's a tough one to quantify, Greg, obviously, because there's a go get factor in there, which is always hard to put your finger on. But I would say, 1st of all, that optimization that you talked about, the profit optimization is with existing clients. So and that's been an ongoing thing that Dave's team has done a Fantastic job by lowering cost, leveraging cost and lowering cost and increasing the gross profit for a long time. And that's still a big, big contributor to us. There's a portion of go get.

Speaker 2

I would go ahead and say, I think more than half of that is in the existing client opportunity. The go get stuff is looking a lot stronger than it has been in the past. So the confidence level is pretty high, but we've got a big head start with We've already got mapped out a lot of those things that draw that increase in gross profit. It's calendared and mapped out already On existing clients, so we feel good about that.

Speaker 7

Thank you. And on the $1,700,000 SG and A cost savings, RWS, you talked about seeing some of that in the 4th quarter, But I think I also heard you say that SG and A should be around $9,500,000 How much of that And that's kind of in line with your prior commentary. How much cost savings from the RWS, $1,700,000 a year, which is like $425,000 a quarter. How much do you think can fall into Q4 versus You start in Q4 and you'll see it in future quarters.

Speaker 1

Yes, most of it should

Speaker 3

be in Q4. We'll get a little bit of additional pickup after Q4, but most all of it will be in place. We've got a couple of other SG and A lines that are coming in and offsetting a bit of that, but overall we expect the full amount to be realized in Quarter 4.

Speaker 8

Okay.

Speaker 7

And so $1,700,000 annualized like 425,000. So you've put this cost savings plan into place very early like in the September time period is like September 1 or 1st couple of weeks of September, if you think you're going to get most of it in the Q4. Is that fair?

Speaker 8

Yes.

Speaker 3

It kind of had a rolling aspect to it. So this wasn't a one time thing. But yes, we Certainly, by the end of the Q3, most of the savings already realized.

Speaker 2

So it's important to note that This isn't a want to do. This is already done. And we're given the annualized number, but the execution of the Initiative is already completed.

Speaker 7

Okay. Okay, great. Thank you. And then on the New customer that I think you said was going to start ramping September 1, that sounded like that was going great. Is there total number of locations, 380 locations or is that just the size of the initial Opportunity they gave

Speaker 2

you? No, that's the number of locations. The size of the initial opportunity is A lot of locations are different sizes. Some are smaller, some are large. It's not uniform.

Speaker 2

So the number of locations is less important Then the waste generated and the amount of it. So it starts out with one part of it and we're adding waste streams as we go and we're also adding new locations and I'm really proud of the team that we have here that's convinced them that they need to accelerate and move forward with additional waste streams and locations As opposed to phasing it over the longer period of time, we were thinking it was going to be frankly. There's still a phase in aspect, Greg, But, we feel pretty confident it's accelerated from what we thought it was initially.

Speaker 7

That's awesome. And is there a way to think about The opportunity with some of those competitors, which it sounds like you think you're also pursuing, are any of those In that bucket, I think you quantified, Ray, is something like far along in the process or maybe at the Closing stage is something I don't remember the exact way you described it, but is there a way to think about how some of those other competitors are in the pipeline, where they are?

Speaker 2

You mean, are we getting those prospects from other competitors? Is that what you're asking, Greg? Yes, yes. Sorry if I said

Speaker 7

it poorly. I think that you have been reticent to give a lot of detail about that Specific company, this new customer that you have because there are other competitors that in their same market That you're going to try to win as customers. And so I think that you my takeaway has been that you're pursuing those customers. Are any of those kind of in that later stage? In your prepared remarks, you talked about some of your customers being Chunky and later in the pipeline, are any of those competitive players to this new mystery customer?

Speaker 7

Are they Furthering the pipeline or how would you characterize where they are in the pipeline? Sorry, I rambled. Hopefully that was clear.

Speaker 2

I understand your question, Greg. And I think you're going to understand I continue to be reticent for competitive reasons to speak to that much detail. But there's a lot of opportunities that are created by Other competitors, frankly, that aren't taking care of their clients as well as we think we can. But I'm probably not going to mention anything specific relative to that. I think you understand that.

Speaker 7

Yes. And my last one, and sorry, I'll hop off and see the floor, is Have you explored I think on the last quarterly call, you talked about exploring opportunities to Maybe refinance your debt. I can't I believe that you said that, but I could be wrong. And I would love to hear Brett's remarks sounded like you guys are focused on reducing your interest expense by managing your cash well, and you've done a good job of that this year and by reducing the principal on your debt. I would love to hear how you think about your refinancing plans?

Speaker 3

Hey, Greg, this is Bret again. Yes, I'll take that. We did talk in Q2 that We were having conversations and we've continued to have conversations and continue to be excited about the opportunities that we have For refinancing, we're taking a really slow deliberate approach to it because we've got a lot of exciting growth opportunities that we've talked about during the call. And we want to make sure that whatever we set up is in place to really help support that growth over the longer term. So We are taking a little bit more time.

Speaker 3

It's certainly not because we don't have really good options. We continue to be really excited about potential partners that we've got out there, But just going to take a little bit more diligent time in making sure we get the right

Operator

The next question is from Greg Malas with MKH Management. Please go ahead.

Speaker 8

Hi, guys. Hi, George. A broad question and then maybe a more sort of detailed question. On the broad question, Greg, you talked about doubling over the last 3 years and about a third of that coming from existing customers. So I So I should find you some very simple math that suggests that you should have growing with your existing base by roughly 10% per year.

Speaker 8

But it seems a little high to me and I wonder if that's about how Where the numbers fall around 10% till the organic growth?

Speaker 2

George, I'm going to answer your question that I believe I heard. It's unfortunately, the connection is not great. But I think your question was around the doubling of our business and 1 third Came from existing clients in essence. Yes. And the fact that you did the math and it sounds like 10% is a little high.

Speaker 2

Is that what you're thinking? Is that what you're asking, George?

Speaker 8

Yes, it seems Are you asking? Yes. Exactly. Yes. Is that the goal going forward?

Speaker 2

Yes, it does seem, I bet it's actually what this team has been doing. And that's growth in gross profit dollars, not revenue Sarah Lee. And so we talked about the procurement initiatives about continuing to leverage and optimize the waste services and create more value from the commodities. And the team has been doing that. So they've been doing that for many years.

Speaker 2

So yes, George, those numbers are accurate and we're really thankful To have those long term relationships with these great clients and we're able to do that.

Speaker 8

So as you go, as you look Forward to 2024 and 2025 with the improvements in the platform that you're making, is that Still what you expect in terms of gross profit dollars in terms of organic growth, are you sort of targeting 10% or How do you think about it?

Speaker 2

We're targeting 10% overall in growth and plus 10% plus. But we expect pretty consistent contribution from the existing clients. The improvement in the platform is going to do a number of things for us, but It's probably going to impact SG and A quite a bit because of the automation type of elements of it and those types of things. So not necessarily as much of a gross profit type of indicator, but there are some gross profit pieces there too. Like We mentioned the procurement tool that guys are able to use and identify better pricing and better locations in a shorter period of time.

Speaker 2

But I would look for the well, I guess I'll answer your question with 2 answers. 1, we have no reason to expect That contribution growth from existing clients to really change over the pattern has had several years. And 2, the technology platform is going to be really beneficial in a lot of ways, but a lot of it is going to come from scalability and leverage internally on our operating costs.

Speaker 8

Okay. Okay, great. And then maybe one question for Brett. Brett, your working capital days, I guess the way I calculate them were sort of roughly 15 days and they've been pretty consistent there in 'twenty three. It's quite a bit better than 'twenty two.

Speaker 8

And what do you expect going forward? Do you have a Target in terms of working capital days or working capital dollars?

Speaker 3

Yes, we continue to focus on that as an opportunity. AR was up a little bit In the quarter compared to last quarter, we had some timing issues and related to we had some projects come on late, So we haven't had a chance to collect those because they had happened later in the quarter. And then a little bit of delayed billings on the RWS piece as we Transitioned the billing under our new system. Again, nothing real concerning there. But yes, we continue to look for opportunities.

Speaker 3

It's tough on a target. The one thing that's cautionary is we are working with very large customers who are trying to manage their working capital As well and especially at the coming into the end of the year, they tend to hold payments as well. So But it's certainly a focus and we think there's some opportunities to get better there as well.

Operator

This concludes the question and answer session. I'd like to turn the conference back over to Ray Hatch for any closing remarks.

Speaker 2

Thank you, operator. I just want to take this opportunity, guys. I want to reiterate our positive outlook. I want to make sure that I came across as I intended that very, very confident. When you look at our business today and look forward, I don't think I've Ever felt better about where we're headed.

Speaker 2

I mean, there's so many positive things in the forefront. So I'm very, very encouraged by that. I want to thank you again for all your interest in Quest. I'm really appreciative of our shareholders and the support that we get from you guys. And I want to thank the rest of the Quest team, I never want to forget this, for the ongoing efforts to deliver value to the client and to the shareholders.

Speaker 2

They've put a lot of time and effort and work and it shows in those Client retention, client relationships, client contract resignings, those types of things, they don't happen if you're not doing a good job. These guys are doing a great job. I'm very appreciative of that. We have a number of key initiatives that we're working on and we've really start ramping them up as we move into Q4. And I'm really excited about what they're going to do.

Speaker 2

They're going to be enhancements to our platform, Enhancements to our ability to grow revenue and to grow gross profit, which should yield a greater EBITDA going forward. So That's kind of where we are. Again, excited about it. I hope you are too. Looking forward to keeping you up to date in the quarters to come and thanks again.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Earnings Conference Call
Quest Resource Q3 2023
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