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Quest Resource Holding Corp (QRHC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue of $68.4M declined 5.8% year over year and 2% sequentially, missing S&P Global consensus of $72.0M by ~$3.6M (-5.0%); adjusted EPS of -$0.14 modestly beat consensus of -$0.153, while GAAP EPS was -$0.50 due to non-cash charges . Revenue and EPS estimates from S&P Global*.
  • Gross margin compressed to 16.0% vs 19.3% a year ago, as onboarding costs, client attrition, and lower volumes at select large industrial clients weighed on profitability; adjusted EBITDA fell to $1.6M from $5.1M in Q1 2024 .
  • Strategic actions: closed sale of non-core tenant-direct mall business for $5M cash (plus up to $6.5M earn-out), used proceeds to pay down debt; SG&A run-rate reductions of ~$3M annualized through headcount cuts and exit of non-core operations; debt agreements amended to ease covenants and increase flexibility .
  • Management expects sequential gross profit improvement beginning in Q2 and SG&A to reduce to ~$9.5M per quarter in 2H 2025, with 2025 top- and bottom-line growth resuming as new clients fully ramp and efficiency programs take hold; near-term catalysts include DSO improvements and realization of cost cuts .

What Went Well and What Went Wrong

What Went Well

  • Closed divestiture of non-core RWS tenant-direct mall business; $5M cash used to reduce debt and eliminate inconsistent, non-contributing business line; earn-out up to $6.5M over 3 years .
  • Performance culture and Operations Excellence Initiative underway to drive process improvements, automation (zero-touch vendor management), and margin expansion; “we are establishing metrics and processes…to benchmark, measure and target improvement levels across the entire organization” .
  • Robust pipeline and ongoing new customer onboarding (2024 adds at ~80% run-rate); management “expects steady improvement as we move through this year” with new wins and share-of-wallet expansion .

What Went Wrong

  • Revenue decline driven by ~$7M client attrition (about half tied to divested mall business) and ~$8M lower volumes at select large clients; mix shift toward newer accounts with less-optimized margins and temporary onboarding costs elevated cost of services .
  • Gross margin compressed to 16.0% (vs 19.3% prior year) and operating loss widened to -$8.2M, reflecting non-cash loss on sale ($4.4M) and impairment ($1.7M), plus higher SG&A (separation costs and bonus accruals); GAAP EPS fell to -$0.50 .
  • Elevated DSOs and working capital usage constrained cash generation; cash ended Q1 at $1.4M with ~$21M of revolver availability; CFO targets DSO improvement by end of Q2, but near-term rates temporarily reverted to pre-refi levels until performance normalizes .

Financial Results

Quarterly Trend (QoQ, oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$72.766 $69.970 $68.430
Gross Profit ($USD Millions)$11.700 $10.727 $10.931
Gross Margin %16.1% 15.3% 16.0%
Operating Income (Loss) ($USD Millions)$(0.941) $(7.177) $(8.161)
GAAP Diluted EPS ($USD)$(0.16) $(0.46) $(0.50)
Adjusted EBITDA ($USD Millions)$2.534 $1.676 $1.555
Adjusted Diluted EPS ($USD)$(0.06) $(0.09) $(0.14)

Year-over-Year (Q1 2025 vs Q1 2024)

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$72.651 $68.430
Gross Profit ($USD Millions)$14.036 $10.931
Gross Margin %19.3% 16.0%
GAAP Diluted EPS ($USD)$(0.03) $(0.50)
Adjusted EBITDA ($USD Millions)$5.120 $1.555
Adjusted Diluted EPS ($USD)$0.08 $(0.14)

Actuals vs Wall Street Consensus (S&P Global) – Q1 2025

MetricConsensus EstimateActualSurprise
Revenue ($USD Millions)72.042*68.430 -3.612 (-5.0%)*
Primary EPS ($USD)-0.153*-0.14 +0.013*

Values marked with * retrieved from S&P Global.

KPIs and Balance Sheet Snapshot (QoQ, oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Cash ($USD Millions)$1.133 $0.396 $1.430
Accounts Receivable ($USD Millions)$60.125 $62.252 $64.162
Notes Payable ($USD Millions)$71.901 $76.265 $74.115
Available Borrowing Capacity ($USD Millions)$16.5 $21.9 ~$21.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
SG&A per quarter2H 2025~$9.5M/quarter ~$9.5M/quarter; Q2 sequential decrease Maintained
Gross Profit trajectoryFrom Q2 2025Sequential GP dollar improvement starting Q2 Sequential GP dollar improvement starting Q2 Maintained
DSOsBy end Q2 2025Target mid-60s; may fluctuate Expect visible improvement by end of Q2 Strengthened near-term target
Interest rates / Covenants2025Refined debt, -150 bps blended margin; lower interest expense ~$1M annually Amended agreements; covenants eased through 2025; rates temporarily back to pre-refi, returning lower when run-rate restored Flexibility increased; near-term rates higher
2025 Revenue/ProfitabilityFY 2025Expect top and bottom-line growth; meaningful growth exiting year Expect top and bottom-line growth; meaningful growth exiting year Maintained
Debt reduction2025Intent to reduce debt Used $5M divestiture proceeds to pay down debt; continued focus on repayment Executed divestiture-driven paydown

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Operational Excellence CultureN/AInitiative announced; leadership additions Initiative executing company-wide; focus on metrics, automation Strengthening
Vendor Management Automation (AI)Implementation drove temporary costs, credits; zero-touch goal Zero-touch benefits emerging; more savings expected into Q2 Onboarding-related costs abate; platform supporting billing velocity Improving execution
Industrial End-Markets WeaknessSofter volumes at large clients Expected to persist for next couple quarters Continued softness; cautious decision-makers Persists near term
DSOs and Cash CycleTarget mid-60s; fluctuations possible Elevated AR; working capital use; refi completed Expect DSO improvement by end Q2; AR elevated; ~$21M revolver availability Improving by mid-year
Debt Refinancing / TermsTarget to refi by year-end 2024 Refined; -150 bps margin; maturities extended Covenants eased; rates temporarily higher pending performance Flexibility increased
Client Pipeline & New Wins9 significant wins; strong onboarding Record wins/expansions; robust pipeline Pipeline robust; new clients at ~80% run-rate; onboarding continues Robust / sustained
AttritionIsolated attrition; tenant billing issues ~1/3 mall-related; rest M&A; sticky industry ~$7M impact (half mall); retention plan; CEO directly involved Stabilizing actions
RWS divestitureAnticipated sale; impairment booked Process ongoing Closed sale $5M; earn-out up to $6.5M; paydown debt Executed

Management Commentary

  • “First quarter financial results were in-line with our expectations…we were able to successfully complete a reduction in staffing levels and the sale of a non-core portion of our RWS business…we believe we are on course to deliver ongoing improvements going forward.” — Dan M. Friedberg, Chairman .
  • “We have established an Operations Excellence Initiative…to drive process improvements, improve cash flow, accelerate automation…increase customer value add, expand margins and accelerate the achievement of scale benefits.” — Perry Moss, CEO .
  • “Revenue for the first quarter was $68.4 million…decrease was attributable to lower volumes due to client attrition and lower volumes at a select number of larger clients…we expect sequential improvements in gross profit dollars beginning in the second quarter.” — Brett Johnston, CFO .
  • “We amended our agreements with Monroe and PNC…covenants have been eased through 2025…rates have returned to the level prior to the refinancing in December and will return to the lower levels once we return to our historic run rate.” — Brett Johnston, CFO .

Q&A Highlights

  • Execution priorities: management identified process gaps across the value chain (vendor, customer, AP/AR); quick-hit initiatives launched to deliver impact beginning Q2, with longer-term workflows to normalize operations and margins .
  • DSOs/Collections: AR and DSOs elevated; focus on faster billing and visibility to missing invoices via automated AP system; expecting DSO improvement by end Q2; collectability not a concern .
  • Pipeline dynamics: slight caution in decision-making timelines but increased demand for cost-focused solutions; late-stage pipeline “more robust than it’s ever been” .
  • Attrition drivers: largely acquisition-related program changes at customers and exit of mall business; instituted customer retention plan with CEO involvement, cadence and share-of-wallet tracking .
  • SG&A trajectory: $3M annual savings already in place starting Q2; SG&A expected ~$9.5M per quarter in 2H 2025 .

Estimates Context

  • Q1 2025 revenue missed S&P Global consensus by ~$3.6M (-5.0%), driven by client attrition, ramp timing and industrial volume softness; adjusted EPS beat by ~$0.013 on lower-than-expected normalized loss, though GAAP EPS was heavily impacted by non-cash charges . Consensus values retrieved from S&P Global*.
  • Given management’s commentary on continued industrial softness and an 80% new-client run-rate, near-term revenue estimates may drift lower while normalized EPS can benefit as onboarding costs abate and SG&A run-rate steps down in 2H 2025 .

Key Takeaways for Investors

  • Non-core divestiture and $3M SG&A run-rate cuts should support margin stabilization and debt reduction; watch for DSO/billing efficiency gains to translate into improved cash conversion by end Q2 .
  • Sequential gross profit improvements targeted from Q2 as onboarding costs subside and mix optimization advances; monitor gross margin trajectory vs 16.0% baseline .
  • Industrial client volume headwinds persist near term; balanced by robust pipeline and share-of-wallet expansion opportunities; risk skewed to revenue pressure in H1, recovery into H2 .
  • Debt flexibility improved (covenants eased), but near-term rates temporarily higher pending performance; execution on EBITDA and cash flow should restore lower rates and reduce interest burden .
  • Estimate resets likely: revenue lower near term; normalized EPS potentially higher as cost actions and efficiency programs take hold; prioritize adjusted vs GAAP metrics given one-time non-cash charges .
  • Trading lens: catalysts in Q2/Q3 include visible DSO improvement, SG&A step-down, and sequential GP lift; risks include prolonged industrial weakness and slower pipeline conversion .

Values marked with * retrieved from S&P Global.