Quest Resource Holding Corporation — FY2022 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2022; it does not provide standalone fourth-quarter results. Quest provides waste, recycling, disposal, and related data services to mostly large, multi-location businesses, using an asset-light network of third-party service providers. The 2022 results include a full year of RWS operations, acquired in late 2021, and a February 2022 acquisition; 2021 included RWS only from November 30.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $284.0 million | $155.7 million |
| Gross profit / margin | $48.9 million / 17.2% | $28.7 million / 18.4% |
| Operating income / margin | $1.4 million / 0.5% | $4.5 million / 2.9% |
| Interest expense | $7.3 million | $2.5 million |
| Net income (loss) | $(6.0) million | $1.7 million |
| Adjusted EBITDA (non-GAAP) | $16.4 million | $10.9 million |
| Cash from (used in) operating activities | $(2.3) million | $2.6 million |
Revenue increased 82.4%, including $98.8 million attributed to acquired customer bases, higher customer activity, and increased recycled-material values. Cost of revenue also rose substantially; gross margin declined 1.2 percentage points. SG&A increased to $37.8 million, with labor-related costs up $9.3 million and bad-debt expense up $1.2 million. The net loss reflects, among other factors, higher interest expense and acquisition-related amortization. Adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP results.
Liquidity, debt, and capital resources
- At year-end, cash was $9.6 million and working capital was $19.7 million, versus $8.4 million and $12.6 million, respectively, in 2021.
- Gross debt obligations were approximately $74.9 million; balance-sheet notes payable were reported net of debt discounts and issuance costs. The Monroe term loan was approximately $61.1 million and the PNC ABL balance was $12.2 million. Debt carries variable rates; year-end stated rates included 10.62% on the Monroe loan and 6.73% on the ABL.
- The ABL facility has a $25.0 million maximum commitment; the filing reports $20.7 million of borrowing-base availability at year-end, with $12.2 million principal outstanding. Debt agreements include financial and other restrictive covenants.
- Most scheduled principal repayment is due in 2025: the debt schedule lists $72.6 million for that year, including the term-loan balance payable at maturity. The Monroe term loan matures October 19, 2025; the ABL matures April 19, 2025.
- Management stated that cash, expected operating cash generation, and borrowing capacity were expected to fund operations for at least the next 12 months. However, operating cash flow was negative in 2022, and financing included additional ABL and term-loan borrowings.
Material changes, outlook, and risks
- The February 2022 acquisition cost approximately $3.35 million. Acquisition growth contributed meaningfully to revenue and operating expenses; the filing attributes $18.3 million of 2022 operating expenses to acquired operations.
- Two customers accounted for 24% of 2022 revenue, compared with 38% in 2021. Customer contracts generally lack firm long-term volume commitments and may be reduced, delayed, or cancelled.
- No formal revenue or earnings guidance is provided. Management expects to pursue customer and service-line growth, strategic acquisitions, and an asset-light model. It said inflation had not materially affected results in 2022, while noting that cost pass-through may be constrained by competition or timing.
- Key risks include customer concentration; commodity-price volatility; reliance on subcontractors; competition; environmental and regulatory exposure; inflation and variable-rate borrowing costs; debt covenants and refinancing needs; and acquisition integration. The company also warns that some materials it handles could be classified as municipal “waste,” potentially affecting its ability to service those materials.
- The company recorded a full valuation allowance against deferred tax assets. Management said sufficient positive evidence might permit a significant allowance release within 12–24 months, but timing and amount depend on actual profitability.
- Goodwill was $84.3 million at year-end, with no impairment recorded. Goodwill valuation was identified by the auditor as a critical audit matter, involving judgment about market capitalization, current EBITDA, and projected results. The auditor issued an unqualified opinion on the financial statements; management concluded internal control over financial reporting was effective, but the auditor did not attest to that assessment.
- No legal proceedings were identified as likely to have a material adverse effect. The company has not paid dividends and does not anticipate doing so in the foreseeable future.
Important facts for investors to verify
- How much of the revenue growth and adjusted EBITDA improvement is organic versus acquisition-related, and whether acquired operations sustain margins.
- Whether working-capital demands, receivable collections, and bad-debt expense improve after operating cash flow turned negative in 2022.
- Current borrowing-base availability, covenant headroom, variable-rate exposure, and the company’s plan to repay or refinance debt due in 2025.
- Customer retention and concentration trends, subcontractor service continuity, and exposure to recycled-commodity price changes.
- Assumptions supporting goodwill recoverability and the timing and likelihood of any deferred-tax-valuation-allowance release.