Quest Resource Holding Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Quest provides recycling, waste-management, and environmental information services, including the Earth911.com website.
Financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $40.0 million | $38.2 million |
| Gross profit / margin | $3.3 million / 8.2% | $3.3 million / 8.7% |
| Operating loss | $1.47 million | $0.61 million |
| Interest expense | $48,597 | $875,467 |
| Net loss | $1.52 million | $1.49 million |
| Loss per share, basic and diluted | $0.01 | $0.02 |
| EBITDAS (non-GAAP) | $(206,150) | $501,702 |
| Cash from operating activities | $483,614 | $(3.51) million |
Revenue grew about 4.8%, primarily from new and expanded customer services, partly offset by lower commodity values. Cost of revenue rose faster than revenue, and gross margin declined due to service mix, commodity prices, and higher costs for certain contracted services. SG&A increased about $783,000, which management attributed primarily to servicing more customer locations. Net loss was broadly unchanged; lower interest expense following retirement of the Sellers’ Notes was offset by higher operating expenses.
Financial position and liquidity
- Cash was $3.31 million at March 31, 2015, versus $3.15 million at December 31, 2014. Working capital was $732,771, down from $1.32 million.
- Accounts receivable was $28.62 million; accounts payable and accrued liabilities were $26.38 million.
- The Regions Bank revolving line had $5.25 million outstanding and $4.75 million available under its $10 million facility. The rate was 2.67%; the balance sheet also included $41,614 of capital lease obligations.
- Operating cash flow improved to $483,614, helped by a $1.01 million reduction in accounts receivable and other working-capital movements. Investing used $320,981, mainly for equipment and software; financing used $5,636 for capital-lease repayments.
- Management said cash, available credit (including an optional $5 million accordion feature), and expected operating cash generation should fund operations for the next 12 months. It also noted that additional debt or equity financing may be needed depending on growth and cash generation.
Outlook, risks, and other notable items
- No quantified revenue or earnings guidance was provided. Management’s stated priorities include expanding sales, customer reach, IT and service offerings, and Earth911 website traffic.
- Two customers accounted for 61.5% of Q1 2015 revenue, compared with 76.1% in Q1 2014, leaving significant customer-concentration exposure.
- Results and margins may vary with commodity prices, service mix and volume, customer contract terms, contracted-service costs, and seasonal factors. Management cautioned that Q1 results may not indicate full-year performance.
- On May 13, 2015, after quarter-end, the Regions facility was amended to extend maturity to May 13, 2018, reduce the applicable Eurodollar margin by 0.25 percentage point, and modify permitted-acquisition terms. The company reported covenant compliance at March 31, 2015.
- The company had approximately $16 million of federal net operating loss carryforwards and a full valuation allowance against deferred tax assets. Goodwill was $58.34 million; the filing reports no impairment charge for the quarter.
- Management reported effective disclosure controls at March 31, 2015 and no material changes in internal control over financial reporting. It reported no known legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether customer concentration has further declined and whether major customer relationships and receivable collections remain stable.
- Whether gross margins recover despite commodity-price movements and contracted-service cost pressures.
- Whether operating cash generation becomes sustainable, given modest working capital and the stated possibility of future financing needs.
- The borrowing base, covenant headroom, and terms of the extended Regions facility, including the optional accordion availability.
- Whether the large goodwill and intangible-asset balances remain recoverable as operating performance and forecasts evolve.