QRHC

Quest Resource Holding Corp (QRHC) - 10-Q Summary

Business Context and Reporting Period

Quest Resource Holding Corp is a national provider of waste and recycling management services, offering collection, processing, disposal, and tracking services to multi-location businesses. This report covers the quarterly period ended June 30, 2026, and the six months ended on that date. The company operates as a single segment and is classified as a non-accelerated filer and smaller reporting company.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Q2 2026 revenue increased 7.6% year-over-year (YoY) to $64.1 million, driven by volume improvements in the industrial sector and new business. However, the six-month revenue decreased 1.7% YoY to $125.8 million, primarily due to the divestiture of an underperforming business in March 2025.
• Profitability: Gross margins compressed to 16.3% in Q2 2026 from 18.5% in Q2 2025 due to margin pressure with certain industrial customers. Operating loss widened significantly to $(9.96) million in Q2 2026 from an operating income of $0.38 million in Q2 2025.
• Impairment Charges: The company recognized a non-cash goodwill impairment loss of $11.0 million in Q2 2026. This was triggered by the company's stock price trading below its book value for a sustained period, indicating fair value was less than carrying value.
• Operating Expenses: SG&A expenses decreased 11.3% in Q2 2026 and 19.7% for the six months, reflecting cost-saving initiatives and reduced labor costs. Depreciation and amortization also declined due to prior asset impairments and divestitures.
• Cash Flow: Net cash provided by operating activities improved to $4.7 million for the six months ended June 30, 2026, compared to $2.8 million in the prior year period, aided by improved working capital management and days sales outstanding (DSO) reduction from 75.9 to 70.5 days.

Outlook, Risks, and Unusual Items

• Debt Refinancing: In March 2026, the company replaced its PNC ABL facility with a new $40.0 million asset-based revolving credit facility with Texas Capital Bank (TCB). The TCB facility has a maturity date of December 30, 2029, and an accordion feature for an additional $10 million. As of June 30, 2026, $17.5 million was outstanding with $19.4 million available.
• Monroe Term Loan Exit Fee: Following an amendment to the Monroe Capital Credit Agreement, the company recorded a liability for an estimated exit fee of $2.0 million. This fee is payable upon triggering events such as change of control, debt refinancing, or maturity, and is being amortized to interest expense.
• Liquidity: Management believes existing cash ($1.0 million), borrowing availability under the TCB facility, and operating cash flows are sufficient to fund operations for the next 12 months.
• Risks: The company faces risks related to global economic uncertainty, inflation, and geopolitical conflicts affecting energy markets. Additionally, the company maintains a full valuation allowance against deferred tax assets due to uncertainty regarding future profitability.

Investor Verification Checklist

• Goodwill Impairment: Verify the assumptions used in the third-party fair value assessment that led to the $11.0 million impairment charge.
• Debt Covenants: Confirm continued compliance with the minimum fixed charge coverage ratio under the new TCB and Monroe agreements.
• Customer Concentration: Note that one customer accounted for 23.1% of Q2 2026 revenue; monitor for attrition or volume changes with this key client.
• Exit Fee Liability: Monitor the $2.0 million Monroe exit fee liability for potential adjustments based on financial performance or triggering events.
• Margin Pressure: Assess the sustainability of gross margins given the reported pressure from industrial customers and the impact of commodity prices.