Quest Resource Holding Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Quest provides waste and recycling services, related products, and environmental reporting services, primarily to larger, multi-location businesses. Results are unaudited; the company notes that interim results may be seasonal and are not necessarily indicative of the full year.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $72.7 million | $74.1 million |
| Gross profit / margin | $14.0 million / 19.3% | $12.6 million / 17.0% |
| Operating income | $1.9 million | $0.8 million |
| Interest expense | $2.5 million | $2.4 million |
| Net loss | $0.7 million; $0.03 per share | $2.0 million; $0.10 per share |
| Adjusted EBITDA (non-GAAP) | $5.1 million | $4.0 million |
| Operating cash flow | $(1.7) million | $3.0 million |
Cash was $0.6 million at March 31, 2024, versus $0.3 million at year-end 2023; working capital was $19.8 million, versus $15.7 million. Total assets were $179.0 million and stockholders’ equity was $66.3 million. Notes payable totaled $71.8 million gross and $68.5 million net of current portion and unamortized costs; the Monroe term loan carried a 12.44% rate and the PNC ABL borrowings a 7.73% rate at quarter-end. PNC’s $35 million ABL facility had $17.5 million outstanding; the filing reports borrowing-base availability of $33.1 million. Variable-rate debt exposes the company to interest-rate risk.
Investing cash outflow was $2.3 million, including approximately $1.6 million for compactors and related equipment. Financing cash inflow was $4.2 million, primarily net ABL borrowings. Operating cash use reflected working-capital changes, including accounts receivable and accounts payable/accruals. The allowance for doubtful accounts rose to $2.0 million from $1.6 million at year-end.
Changes versus prior year
- Revenue decreased 2.0%. Management attributed the decline mainly to lower volumes from three customers, reducing revenue by approximately $7 million; stronger demand across the remaining business added approximately $5 million.
- Gross profit increased $1.4 million and gross margin improved 2.3 percentage points, which management attributed to broad margin gains and the net effect of revenue and cost changes.
- Net loss narrowed by approximately $1.4 million. Adjusted EBITDA increased 28.4%, to $5.1 million.
- Operating cash flow moved from $3.0 million provided to $1.7 million used, while investing outflows increased, primarily due to equipment purchases.
Outlook, risks and notable items
- Management believes cash, ABL borrowing capacity, and expected operating cash generation will fund operations for the next 12 months and thereafter for the foreseeable future. No numerical earnings or revenue guidance is provided.
- Management says inflation had no material impact in the quarter and that flexible pricing and cost-recovery provisions can offset some increases; competitive pressure or delays may prevent full recovery. The filing also cites economic uncertainty, higher interest rates, geopolitical disruption, and potential financing difficulty.
- Two customers represented 36.3% of Q1 revenue, compared with 26.3% in Q1 2023. Customer volumes and mix can affect revenue and margins.
- The company recorded a $59,348 tax provision and maintained a full valuation allowance against deferred tax assets. Management said sufficient positive evidence might support releasing a significant portion within 12–24 months, but timing and amount depend on actual profitability.
- After quarter-end, Quest bought 92 additional compactors and related equipment for approximately $1.5 million and drew $2.5 million on its PNC equipment term loan to finance 80% of aggregate equipment purchases. It also amended its Monroe and PNC credit agreements on March 29, 2024.
- Quest paid a $1.0 million acquisition-related earn-out in Q1. It reported no legal proceedings believed likely to have a material adverse effect, no off-balance-sheet debt, and no defaults upon senior securities.
Important facts for investors to verify
- Customer concentration, retention, and the sustainability of demand and margin gains.
- Receivable collections and the increase in the doubtful-account allowance, alongside negative Q1 operating cash flow.
- Debt terms, variable interest exposure, actual unused ABL availability, and post-quarter equipment-loan borrowings.
- Whether profitability supports any deferred-tax valuation-allowance release and management’s liquidity outlook.
- Adjusted EBITDA and adjusted net income are non-GAAP measures; review their reconciliations and adjustments alongside GAAP results.