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Quest Resource Holding Corp (QRHC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered sequential improvement: revenue rose 6.4% to $63.3M and adjusted EBITDA grew 9.5% to $2.9M; operating cash flow accelerated to $5.7M, enabling $4.6M of debt reduction in the quarter .
  • Results beat Wall Street consensus: revenue $63.3M vs $59.8M estimate (+5.9%), and adjusted EPS of $(0.02) vs $(0.087) estimate; both were better than expected amid continuing industrial end-market softness *.
  • Gross margin expanded YoY to 18.1% (from 16.1%), though dipped 40 bps QoQ on land-and-expand mix and renewal pressure; SG&A reductions continued, down ~10% YoY to $9.2M .
  • Management emphasized operational excellence, share-of-wallet growth, vendor optimization, and cash generation as ongoing catalysts; Q4 outlook calls for gross profit dollars flat to slightly down and further SG&A reduction, with continued debt paydown .

What Went Well and What Went Wrong

What Went Well

  • “We delivered a solid third quarter with strong sequential improvements in our financial performance” and progress across operational excellence initiatives driving visibility, productivity, vendor practices, and cash generation .
  • Gross margin expanded 200 bps YoY to 18.1%, supported by exit of lower-margin mall business and optimization efforts; adjusted EBITDA increased YoY to $2.9M .
  • Cash conversion improvement: operating cash flow $5.7M (+~46% QoQ), DSOs fell ~9 days into the lower-70s, enabling $4.6M of debt paydown in Q3 and $11.2M YTD .

What Went Wrong

  • Revenue down 13% YoY to $63.3M on divested mall-related business and lower volumes from industrial customers; pipeline conversion slower given macro uncertainty extending sales cycles .
  • Sequential gross margin decline of 40 bps driven by initial mix of newer clients and margin pressure from renewals; management expects some continued pressure near term .
  • YTD GAAP metrics remain challenged: YTD GAAP net loss $(13.7)M and adjusted EBITDA $7.2M vs $12.8M PY, reflecting first-half restructuring and non-cash charges tied to divestiture and impairment .

Financial Results

Core metrics vs prior periods and consensus

MetricQ3 2024Q1 2025Q2 2025Q3 2025Consensus (Q3 2025)
Revenue ($USD Millions)72.8 68.4 59.5 63.3 59.83*
Gross Profit ($USD Millions)11.7 10.9 11.0 11.5 —
Gross Margin (%)16.1% 16.0% 18.5% 18.1% —
GAAP EPS ($)(0.16) (0.50) (0.09) (0.06) —
Adjusted EPS ($)(0.06) (0.14) (0.04) (0.02) (0.087)*
Adjusted EBITDA ($USD Millions)2.53 1.56 2.68 2.94 —
  • Beats/misses vs consensus: Revenue beat by ~$3.5M; Adjusted EPS beat by ~$0.067. Bold=significant: Revenue: $63.3M vs $59.8M → Beat; Adjusted EPS: $(0.02) vs $(0.087) → Beat *.
  • QoQ: Revenue +6.4%; Gross profit +3.9%; Adjusted EBITDA +9.5% .
  • YoY: Revenue −13.0%; Gross margin +200 bps; GAAP EPS improved from $(0.16) to $(0.06) .

KPIs and cash/expense trajectory

KPIQ1 2025Q2 2025Q3 2025
Operating Cash Flow ($USD Millions)(1.1) 3.9 5.7
SG&A ($USD Millions)11.4 9.30 9.24
Net Notes Payable ($USD Millions, period-end)74.1 69.7 65.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross profit dollars (sequential)Q4 2025Resume sequential growth in Q4 Flat to slightly down vs Q3 Lowered
SG&A (sequential)Q4 2025~$9.5M/quarter starting H2’25 Down sequentially from Q3 ($9.2M) Tightened lower
Margin trajectoryQ4 2025Margin pressure expected in Q3 from renewals Some margin pressure to continue near-term; offsets from optimization/share-of-wallet Maintained caution
Cash generation & DSOsQ4 2025Improve DSOs by end of Q2 Continued cash generation and further DSO reduction expected Extended improvement
Debt reductionQ4 2025 onwardAggressive paydown (after covenant easement) Continue aggressive debt reduction; restricted on higher-cost debt until after Q1’26 earliest Maintained roadmap

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Operational ExcellenceLaunch and scaling of KPI-driven culture; AP automation; expect SG&A reduction, margin optimization “Operational Excellence initiatives are driving… improving financial results and cash generation” Improving
Industrial end-market weaknessNoted softness; caution on volumes; renewal-related margin pressure Markets “stabilized,” but industrials remain seasonally challenged in Q4 Stabilizing, still soft
Vendor management platformZero-touch AP rollout; expected billing speed and cash-cycle gains Service disruptions at lowest ever; vendor outreach improving rates Improving
Sales pipeline & share-of-walletRobust pipeline but decision delays; structured discipline; expansion with new restaurant, retail client Enhanced share-of-wallet discipline; added cardboard/organics streams; new food processing client (20% of footprint to start) Building
Cash generation & DSOsAim to reduce DSOs; billing acceleration; accrued revenue clearance OCF +46% QoQ; DSOs down ~9 days into lower-70s; continued improvement expected Improving
Debt reduction & financingCovenant easement; debt reduction trajectory; rates to normalize with performance $4.6M Q3 paydown; $11.2M YTD; higher-cost debt prepay earliest after Q1’26 due to constraints Improving, constraints remain
Margin dynamicsExpected near-term pressure from renewals; optimization offsets over time 18.1% gross margin (+200 bps YoY), −40 bps QoQ; land-and-expand mix and renewals pressure Mixed: YoY up, QoQ down

Management Commentary

  • Chairman: “We are on more solid footing… results are consistent with our stated expectation for an improved trajectory… confident… maintain this momentum as we finish 2025 and head into 2026” .
  • CEO: “Operational Excellence initiatives are… ultimately improving financial results and cash generation… confident in our ability to execute… as macroeconomic conditions and Industrial volumes normalize” .
  • CFO: “Revenue… $63.3 million… sequential increase of 6.4%… Gross margin was 18.1%… better than prior year; sequential decline of 40 bps… SG&A $9.2M, down $1M YoY” .
  • CEO on sales: “We have mapped every opportunity… collaborating between relationship managers and sales… KPIs around that whole approach… added significant share of wallet with cardboard, food waste, plastics” .

Q&A Highlights

  • Industrial outlook: Markets “stabilized,” but expect typical Q4 industrial seasonality; strategy emphasizes share-of-wallet growth to offset softness .
  • New food processing win: Competitive; initial footprint ~20% with slightly higher-than-usual margins; strong land-and-expand potential .
  • Vendor platform & service quality: Service disruptions at historic lows; vendors proactively seeking business; better rates and invoice automation improving costs .
  • Cash and debt: DSOs improving; model “built to generate cash”; higher-cost debt prepayment restricted until after Q1’26, but intent is to reduce expensive debt as metrics allow .
  • Renewals & attrition: Renewal plan starts earlier to maintain leverage; attrition “back to historical low levels,” with strengthened customer relationships .

Estimates Context

  • Q3 2025 consensus: Revenue $59.83M*, EPS $(0.087), both based on 3 estimates. Actuals: Revenue $63.3M, adjusted EPS $(0.02) → Beat on both *.
  • Implications: Street likely revises near-term EBITDA/OCF higher given operational execution and cash cycle gains; margin forecasts may modestly temper on mix and renewal comments .
  • Note: Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Sequential improvement and beats vs consensus suggest inflection: operational excellence and share-of-wallet execution are translating to better OCF and EBITDA despite end-market softness .
  • Gross margin trends: YoY expansion to 18.1% reflects portfolio mix and optimization, but near-term QoQ pressure from renewals and newer-client ramp remains a watch item .
  • Cash cycle momentum: DSOs fell ~9 days; OCF $5.7M supports continued deleveraging, a key equity and credit derisking catalyst into 2026 .
  • Outlook reset: Q4 gross profit dollars guided flat to slightly down (vs prior expectation of growth), suggesting conservative positioning amid seasonality and industrial volumes; SG&A reductions to continue .
  • Vendor ecosystem strength lowers service disruption costs and improves rates—an underappreciated driver of margin stability in an asset-light model .
  • Sales discipline and data platform vision (subscription potential) could add high-margin streams over time; not yet sized but strategically noteworthy .
  • Near-term trading: Positive skew from cash generation and estimate beats; monitor Q4 margin/GP trajectory and any updates on debt covenant milestones enabling reallocation to cheaper debt .

Footnotes:
*Values retrieved from S&P Global.