Quest Resource Holding Corp. Aktie

Thank you for.

the Corporation's Second Quarter 2026 Earnings Call. I'd like to remind everyone that this call is being recorded and that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. would like to ask a question during this time, simply press star followed with the number one on your telephone keypad. If you would like to withdraw your question, press I would now like to turn the call over to Nick Nelson, Alpha Ayer Group. Please go ahead.

Thank you, Operator, and thank you everyone for joining us for Quest Resources' second quarter 2026 earnings call. Before we begin, we'd like to remind everyone that this conference call may contain predictions, estimates, and other forward-looking statements regarding future events or future performance of the company. Use of words like project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs, and assumptions, and involve significant risks and uncertainties, Actual events or the company's results could differ materially from those discussed in the forward-looking statements as a result of various factors which are discussed in greater detail in the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made, and the company undertakes no obligation to update such statements unless required by law to do so. In addition, this column may include industry and market data and their statistical information, as well as the company's observations and views about industry conditions and developments.

The data and information are based on the company's estimates, independent publications, government publications, and reports by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information. Non-GAAP financial measures will be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the the company's ongoing core operations and prospects for the future. Unless it is stated otherwise, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release.

With that, I'd like to turn the call over to Perry Moss, Chief Executive Officer.

Thanks, Nick, and thanks, everyone, for joining this afternoon. Quest delivered a solid quarter of results as the sequential improvements in momentum we experienced in the first quarter carried forward into the second period. We returned to top-line revenue and adjusted EBITDA growth compared to both the prior year and the prior quarter. supported by the growing contributions of recent customer wins and wallet share expansions, stabilizing volumes from our industrial customers, and ongoing productivity improvements across the business. We're encouraged by this progress, but understand that the macro environment remains complex and at times uneven. Within our industrial portfolio, we also saw positive trends carry forward into Q2. This drove sequential volume improvements as well as meaningful year-over-year growth from some of our largest customers. That said, volumes still remain subdued relative to a few years ago at a few select accounts and are likely the new norm. we will continue to monitor the broader macro environment closely.

Given how the first half of the year played out, we're cautiously optimistic that our industrial portfolio has stabilized. The non-industrial portion of the portfolio, meanwhile, continues to perform as well as or better than expected, as we've grown meaningfully in markets like food service, retail, hospitality, and more. The comprehensive efforts we have taken over the past several quarters designed to streamline our operations, diversify the business, and improve productivity levels are clearly showing results. I'm incredibly proud of the entire Quest team for their hard work and commitment through this period. and the way they've bought into the changes we've implemented. While there remains significant work to be done, we are encouraged by what appears to be a gradually improving operating environment, well as the wins our initiatives are delivering. We're mindful that these trends can shift, so we're staying disciplined rather than getting ahead of ourselves. Along those lines, we'll continue to seek ways to drive incremental improvements in the business through our operational excellence initiatives, effectively control our cost structure, and ensure the business is well positioned to drive stronger financial results going forward.

Moving to specific results for the period, revenue in the second quarter grew by 8% compared to the prior year and 4% sequentially. That growth was driven by a renewed sales and go-to-market effort that elevated our focus on non-industrial markets, as well as wallet share opportunities across our existing portfolio. With the internal tools and processes we've implemented to better identify, track, and close these opportunities, the results have followed. Over the past four quarters, we've successfully onboarded several new customer wins. Importantly, as I've noted earlier, many of these wins are outside the industrial sector and are helping diversify the portfolio. They include a customer in the food products market, a large restaurant chain, a large retailer, and one of the largest franchisees in the quick service restaurant industry. At the same time, we've landed several new wallet share gains with existing customers, including an expansion with an existing retail customer, addition of several hundred new locations with a customer in the automotive services and market, and expansions with two other major customers.

More recently, in the second quarter, we landed four new share wallet wins, including a significant one with a large national automotive parts retailer. Each of these wins over the past year is helping create a better balance across our portfolio and demonstrates both the capability of our sales team and the appeal of the Quest model across markets. We are also continue to expand our sales pipeline during the period. Our pipeline remains healthy and we're engaged with several promising opportunities to add large national brands to our portfolio. Some of these opportunities are in markets that are new for Quest, which would further diversify our customer list and provide incremental offsets to the seasonally slower periods for many of our industrial customers. That said, many of these companies are also actively monitoring the current macroeconomic backdrop, which is elongating the sales cycle. We like our positioning, but the timing on closing these opportunities will ultimately depend on how quickly these companies gain confidence in the broader environment.

Operationally, we continue to execute well and I believe we're operating more efficiently than at any point in my time here. Brett and his team have done a terrific job optimizing our cost structure, improving our cash cycle, and reducing debt, which will put us on firmer financial footing as volumes improve. Some of this is already evident in the strong flow-through of our sequential gross profit gains to adjusted EBITDA in the most recent quarter. On the cost side, diesel prices have risen amid geopolitical events around the world, yet Quest has experienced only a limited impact on our financials through this extended period of elevated prices. We view this as a good proof point for our model and its relative resilience to short-term commodity fluctuations, as well as our ability to use our scale to push back on cost increases where we can or to pass through unavoidable costs to our customers. Lastly, we continue to evolve our organizational structure and make personnel changes to attract, develop, and retain the best team possible. This holds true across the organization, from sales and key accounts to IT, finance and We made some exciting changes so far this year through the addition of high-quality talent in key areas, and we'll keep finding ways to put the team in the best position to succeed and serve our customers.

Looking ahead, our priorities remain focused on growing the business with new and existing customers. driving margin improvements, continuing the development of our operating platform, improving cash generation, and reducing our debt balance. With that, I'd like to turn the call over to Brett to review our second quarter financial results in greater detail. Brett? Thanks, Perry, and good afternoon, everyone. Before I walk through the financials, I want to underscore the themes from Perry's remarks regarding our second quarter results. First, we return to top line and adjusted EBITDA growth, which came from parts of the portfolio we have been deliberately building. This includes new customer wins and wallet share expansions in non-industrial markets. Further, our industrial business has stabilized and contributed meaningfully to our year-over-year growth, which is encouraging to see.

We're not taking this stabilization for granted and remain optimistic about the environment. Lastly, the progress on operational excellence is being reflected in our financials as we saw lower SG&A on higher revenues, strong operating cash flow, and continued debt reduction. Taken together, we are building a more diversified revenue base with a leaner cost structure and a healthier balance sheet. So let's talk through our results. Revenue for the second quarter was $64.1 million, an 8% increase from one year ago, and a sequential increase of 4% compared to the first quarter. The increase was primarily driven by volume improvements from certain clients in the industrial end market, which increased revenue by approximately $3.3 million compared to the prior year. as well as new business, net of customer attrition of approximately $1.2 million from new client wins and wallet share expansion with existing customers. This marks an encouraging reversal from the industrial headwinds we experienced in recent quarters.

While we believe the stabilization we are seeing across several of our largest industrial accounts can continue, we know that conditions can change quickly, especially given the ongoing macroeconomic complexity. This return to growth reflects the team's focus on diversifying the business into non-industrial markets and also the resonance of the Quest value proposition with customers across economic sectors and which is centered on operational efficiency. Also, as a brief reminder, we are now reporting much cleaner, comparable results year over year. as we have sunsetted the majority of the significant headwinds experienced across 2024 and 2025. As we look ahead to Q3, we expect another quarter of sequential growth in revenue. Moving on to gross profit, in the second quarter, gross profit dollars totaled $10.4 million, a decline of roughly 6% compared to the prior year. but a sequential increase of 8%. This resulted in a gross margin of 16.3%, which was down from 18.5% in the prior year, up from 15.7% sequentially. The year-over-year decline in gross profit dollars and gross margin is primarily isolated to margin pressure with select industrial clients, despite the volume improvements noted above.

This was offset by both higher gross profit dollars and improving gross margins across the remainder of the business. as margins from recent new customer and wallet share wins are maturing, and we continue to employ a continuous improvement approach to optimizing our cost structure. We still anticipate gross margins to be flat to slightly up in the third quarter as industrial volumes ramp at a few select larger customers. However, we are clearly demonstrating our ability to help offset this impact by focusing on what we can control, growing in non-industrial markets, optimizing service levels across the portfolio, winning incremental wallet share with existing customers, and executing our Land and Expand strategy to grow margin levels at recently onboarded accounts. Now moving on to SG&A, which was $8.2 million, an 11% reduction compared to the prior year, despite revenue growth of 8%. It was also a sequential decline of 2% despite a 4% sequential increase in revenue. These productivity improvements are tangible examples of our operational excellence initiatives, delivering real results and focusing on elements directly within our control. We'll continue to be disciplined on the cost front and remain vigilant for incremental ways to improve efficiency levels.

During the quarter, we incurred a non-cash goodwill impairment charge of $11 million, triggered by the decline in our market capitalization. The charge has no impact on our liquidity, cash flow, or compliance with our debt covenants. Moving on to a review of the cash flows and balance sheet. We ended the quarter with $1 million in cash and approximately $19.4 million in availability on our ABL credit facility. Net notes payable was approximately $59.4 million, a reduction of $4.6 million year-to-date, and approximately $17 million over the last six quarters. We delivered $4.5 million of operating cash flow in the quarter, driven by higher revenues, cost discipline, the ongoing optimization of our billing and collections processes, and our improved vendor payment processes, all contributing to improvements in our cash cycle. This facilitated the further reduction of our term debt held by Monroe Capital as we utilized our strong cash flow to make another voluntary $2 million early payment.

We expect continued progress on cash generation paired with the lower future interest expense to free up additional cash to allocate toward debt reduction, and we will execute additional early payments as appropriate. Year to date in 2026, we have now reduced the term balance by over $4 million and debt reduction remains a key priority. Our DSOs finished the quarter at roughly 70, which was a nice improvement from the mid-70s at the end of the first quarter. Accounts receivable declined by roughly $2.5 million sequentially, despite the sequential increase in revenues. We will continue to implement ways to improve our cash cycle and believe that we have a clear path to our near-term target of the mid-60s. During the second quarter, we also reduced the number of working capital days to five, an improvement from 12 days at the end of the first quarter and 19 days one year ago. Overall, as Perry noted, we are cautiously optimistic that the operating landscape is slowly improving.

Stabilizing volumes from the industrial portion of the portfolio, coupled with the organic initiatives we've taken to diversify the business and elevate productivity across the organization, are driving improved financial performance, despite what remains a difficult environment. We are continuing to focus on what is within our control, and our financial priorities are unchanged. Beyond investing in our talent and growth opportunities, these include optimizing our cost structure, leveraging our operational excellence initiatives to drive cash flow, and paying down debt. Our continuous improvement approach to our cash cycle is centered around elevating our billing and collection practices and further optimizing working capital. Collectively, these actions are providing the financial flexibility to position Quest for continued success as our business moves forward and will allow us to deliver improved financial results as conditions continue to improve. With that, I'll turn the call back over to Perry for some closing comments before we open it up for Q&A. Harry? Harry Vickery Great. Thank you, Brad.

Our second quarter was another step in the right direction, as the proactive efforts we've taken over the past year plus to improve operations are being supported by a gradually improving macroeconomic backdrop. While this optimism is tempered somewhat by renewed geopolitical risks, we are cautiously optimistic that the current trajectory of the business, combined with the growth of the ongoing initiatives within our control have us on a path towards improved financial results. With that, I'd like to turn the call over to our operator to move us to Q&A.

Operator? We will now begin the question and answer session. If you would like to ask a question, please press star key then number one in your telephone keypad to raise your hand and join the queue. To draw your question, press the star key then number one again. Your first question comes from the line of Aaron Spicalla from Craig Hallam. Please go ahead.

Yes, good afternoon, Perry and Brad. Thanks for taking the questions. Sure. Hi, Aaron. Hi. Hi. First for us, good to see the traction on the wallet share wins. Any details on the automotive customer size, locations, or waste streams? And then can you just speak to confidence or growth in that wallet share pipeline? I know you've targeted some industrial expansions. are those still possibilities and just maybe some color there please.

Yes, so, Aaron, you know, we don't typically talk too directly about individual customers. opportunity that I referenced in the call is Is similar to a target for a new business account so seven figure plus I And it's in the commodities sector. So those opportunities come to us at kind of our normal margin and not the land and expand option. So they come in a little higher from the very beginning. So they help to drive incremental GP. I think there's still future or additional, I should say, opportunity to grow with that account. perhaps some of their competitors. So it's a little niche solution that we offer that has kind of gotten some traction. As we've talked about, you know, we'll continue to attempt to diversify our portfolio.

It certainly doesn't imply that we wouldn't pursue an attractive industrial opportunity In fact, there are several in the pipeline, but I think diversification is very important. We are working on share of wallet opportunities with our current industrial customers, and we'll continue to do, you know, to find those efforts. Just you know, since the back half of... We probably haven't said this before, in the back half of 25 into this year, You know, we've now closed nine different mean figure opportunities. So we'll certainly continue that effort. Our relationship with these customers certainly makes the sales effort easier. We're trusted, we're proven, and I guess we're a known commodity.

So it's a little quicker and easier to land those deals. And they certainly have been accretive to our gross profit.

Great. Yes, that's good to hear. And then, you know, just with that kind of combination of growth and new and existing and the operational initiatives you had, I know in the past you've talked about, you know, like a 50% conversion from gross profit dollars to EBITDA. I mean, Is that still fair or is the target maybe a little bit higher just given some of those operational improvements you've made?.

Yes, I think it's fair to say it's a little higher. It's certainly higher with the share wallet opportunities. As we've talked about before, the implementation or onboarding cost are significantly lower with the share wallet because we've already got these customers set up in the system. They know us. The transition goes much smoother. So I don't really want to have a quota, an actual figure, but I would say it's fair to assume that it's slightly higher.

Make sense. And then just maybe last, any update on just operational initiatives over over the last year plus that you've made and any other areas of notable focus moving forward.

Yes, I mean, our focus has been on, you know, redefining all of our internal processes optimizing those, getting them documented, training our folks so we have very standardized processes. That makes the work a lot easier because everyone is doing, you know, the work the same way. It's easier for us to train. And the goal is... do it right the first time so there isn't remedial work to do. We have found our productivity levels in increase significantly in certain areas because of those efforts. You know, when you're not tracking or measuring, it's very difficult to improve, right? You have to have a starting point or a baseline. You have to create an improvement plan.

You have to implement it, and then you have to track it every week. that's what we do. So there's been, as you can see through the reduction in SG&A, you know, the first six months this year compared to last year is a 20% reduction. The initiatives are certainly paying off.

Great. Thanks for taking the questions. I'll turn it over.

Sure. Again, if you would like a question, please press TARKEY, the number one on your telephone keypad. Since there are no more questions, that will conclude our question and answer session. We'll now turn the call back over to Perry Moss for closing remarks. Perry Moss Great. Thank you, operator.

And thank you and thanks to everyone for joining this afternoon. We really appreciate your continued support and interest in Quest, and we look forward to updating all of you for the next quarter. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, and welcome to Quest Resource's First Quarter of 2026 Earnings Conference Call. [Operator Instructions] Also, please be aware that today's call is being recorded.

I would now like to turn the call over to Ryan Coleman with Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us for Quest Resource's First Quarter 2026 Earnings Call. Before we begin, I'd like to remind everyone that this conference call may include predictions, estimates and other forward-looking statements regarding future events or future performance of the company. Use of words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs and assumptions and involve significant risks and uncertainties. Actual events or the company's results could differ materially from those discussed in the forward-looking statements as a result of various factors, which are discussed in greater detail in the company's filings with the Securities and Exchange Commission.

You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made, and the company undertakes no obligation to update such statements unless required to do so by law.

In addition, this call may include industry and market data and other statistical information as well as the company's observations and views about industry conditions and developments. The data and information are based on the company's estimates, independent publications, government publications and reports by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest does not independently verify the reliability of the sources or the accuracy of the information.

Certain non-GAAP financial measures will also be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future.

Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release.

With that, I'd like to turn the call over to Perry Moss, Chief Executive Officer.

Thanks, Ryan, and thanks, everyone, for joining this afternoon. Our first quarter marked a steady monthly sequential improvement in the business from the fourth quarter, which was consistent with the seasonal trend we typically observe, though slightly better than the prior year. Revenue from our industrial customers increased primarily due to seasonality, though we did see some incremental revenue from certain customers above the usual seasonal acceleration. However, the industrial portfolio as a whole remains challenged as a result of the softer manufacturing environment.

Meanwhile, nonindustrial parts of the business performed largely in line or better than anticipated as our focus to diversify the business into sectors like restaurants, hospitality and retail helped to partially offset the lower industrial volumes. Notably, our performance improved from month-to-month throughout the quarter, and we ended the quarter with an encouraging trend.

While it is far too early to determine the durability of this trend, we are cautiously optimistic given the exit rate of the quarter. This is tempered in part by recent geopolitical events as well as the risk of extended period of elevated fuel prices. As we continue to communicate, we are acutely focused on what we can control. We continue to demonstrate a firm grasp on the operations of the company as our operational excellence initiatives are delivering improved performance across the business from exception management, wallet share expansions, billing and collections and overall productivity and cost containment efforts.

We're controlling costs very well and taking proactive measures to give ourselves incremental financial flexibility as macroeconomic conditions improve. We're very encouraged by our progress on each front and expect these initiatives to drive additional efficiencies going forward. These efforts also began to deliver important sales momentum during the second half of 2025, which included the launch of a significant expansion of an existing retail customer, the onboarding of a new full-service restaurant customer and expanded share of wallet wins with two major customers.

While each of these wins were delivering incremental revenue since shortly after their announcement, the one-time costs associated with onboarding these clients had been masking their profitability contributions. I am pleased to report that each of these recent wins finished the first quarter as full contributors to our financial results as we have completed the onboarding period of one-time cost to execute the service change-outs to serve these new or expanded programs.

Our new sales pipeline remains active, and we continue to engage with several exciting opportunities to add large national companies to our portfolio. While the overall macroeconomic environment continues to slow the overall decision-making process for many of these prospective customers, we are encouraged by the discussions we are having as the Quest value proposition continues to resonate with key prospective customers.

We ended 2025 with better momentum, though saw opportunities get pushed into 2026. We remain very engaged with these prospects and believe that we will be able to successfully win and onboard our share of these potential customers as the macro backdrop improves and confidence returns. Just recently, we won a new contract with one of the largest franchisees in the quick service restaurant industry. This customer is a large national operator that carries plenty of white space for wallet share expansion as we execute effectively.

It also marks another important win to diversify the business and will help to offset the seasonal fluctuations of our larger industrial customers. We onboarded this new customer on May 1 with minimal service change-outs. We also remain encouraged by the number and size of share of wallet opportunities with existing customers, which remains a central focus of ours.

Last year, we heightened our focus on this sales channel and structured a more robust internal systems and processes to track, evaluate and pursue these opportunities. We are very happy with the early successes we've had, and we have broadened the number of waste streams that we're handling for some clients, adding new value-added services or have captured larger share of customer locations.

Our growing pipeline of opportunities across both new sales and wallet share expansions leaves us confident that these initiatives will contribute to greater levels of organic growth for us going forward and be strong contributors to gross profit dollar growth as we continue to execute our land and expand strategy, and optimize service levels. We also continue to diversify the portfolio as we grow in nonindustrial end markets like retail, hospitality, grocery stores and expand into new markets like health care and more.

Our technology and capabilities continue to be key differentiators for us and are driving improved customer service levels and vendor management practices. Our technology platform's ability to identify exceptions in vendor invoices is central to our value proposition of cost avoidance, cost reduction and improved service levels. The platform's ability to identify these exceptions continues to improve. And importantly, we have invested in automated no-touch capabilities to enable our team to effectively rectify these exceptions. Customer and vendor-facing advancements like these create real value and make it easier to do business with Quest, but also help to optimize our internal processes and overall profitability.

Overall, macroeconomic conditions and a softer industrial environment continue to flow through to reduced volumes from our large industrial customers. However, we continue to make very encouraging progress streamlining our overall operations and growing in nonindustrial end markets. We remain as confident as ever that we are on very solid footing for when conditions improve and as our softer year-over-year revenue is a function of volume and not one of customer attrition. The operational improvements we've implemented over the past year will drive higher leverage when conditions normalize, and we are encouraged by the trend we finished the first quarter on and cautiously optimistic as we look out to Q2 and the rest of 2026.

Looking ahead, our key priorities remain unchanged in 2026. We remain focused on growing the business with new and existing customers, driving margin improvements as we execute our operational excellence initiatives, continuing the development of our operating platform, improving cash generation and reducing our debt balance.

With that, I'd like to turn the call over to Brett to review our first quarter financial results in greater detail. Brett?

Thanks, Perry, and good afternoon, everyone. Revenue for the first quarter was $61.7 million, a 10% decrease from 1 year ago, but a sequential increase of 5% compared to the fourth quarter. The year-over-year decline was primarily driven by ongoing headwinds from certain clients in the industrial end market, which reduced revenue by approximately $4 million compared to the prior year. These headwinds are mostly confined to a few clients and are primarily related to lower waste volumes and services, which are directly tied to the client's lower production volumes.

Notably, the year-ago period also included $3 million of revenue from our mall-related business, which was divested in the first quarter of 2025. Excluding these specific headwinds, the business continued to grow by approximately $2 million, mostly related to new clients and the expansion of client business or wallet share during the fourth quarter of 2025. This growth in business was partially offset by client attrition of $1.7 million, primarily related to a single client loss in the first quarter of 2025.

While this growth was modest, it speaks to the efforts of the entire team to offset the impact of the industrial headwinds. It also speaks to what should be less noisy comparables year-over-year as we have now sunsetted the higher-than-normal attrition experienced in Q4 of 2024 and Q1 of 2025. As a reminder, this attrition was isolated and mostly related to customers that were acquired and absorbed into the incumbent waste solution. Since then, we have returned to normalized customer retention rates, which have been very sticky historically. On a sequential basis, the improvement was driven by higher seasonal volumes from our industrial customers and continued growth across much of our nonindustrial portfolio, with performance strengthening across the quarter.

Moving on to gross profit. In the first quarter, gross profit dollars totaled $9.7 million, a decline of almost 12% compared to the prior year, but a sequential increase of 6%. This resulted in a gross margin of 15.7%. The declines in both gross profit and gross margin compared to the prior year were primarily isolated to the headwinds from the select industrial clients, which contributed to lower volumes as well as isolated margin pressure. These declines were slightly offset by both improved gross profit and gross margins across the remainder of the business as operating initiatives, maturing margins from new clients and wallet share expansions continue to take hold.

The sequential improvement was in line with our expectations provided last quarter and representative of the seasonal improvement from industrial customers as well as the contribution of recently onboarded customer wins and share of wallet expansions as we have cleared the one-time costs associated with those launches. As we look ahead to Q2, we expect sequential growth in gross profit dollars as recent new business wins and wallet share expansions finished Q1 as full contributors to our financial results.

Additionally, the new quick-service restaurant customer will launch in Q2 and is expected to begin ramping fairly quickly as it requires fewer associated service provider change-outs, which means minimal start-up costs and thus should contribute gross profit dollars more quickly than a typical new client win. While we expect to continue to experience some margin pressure in 2026, both in a challenged industrial volume environment as well as from the mix impact of our land and expand strategy we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients, optimizing the client wins from the previous years and continuing to drive operational improvements across the business.

Moving on to SG&A, which was $8.4 million and better than our estimate for the quarter that we provided on the last call. Sequentially, SG&A grew 9%, driven mainly by the resumption of our bonus expense. Our operational excellence initiatives continue to deliver strong productivity and cost containment results, and we remain focused on maintaining this discipline going forward. To that, compared to the prior year, SG&A has decreased by $3 million, a 26% reduction year-over-year.

Moving on to a review of the cash flows and balance sheet. We ended the quarter with $1.1 million in cash and approximately $63.4 million in net notes payable. As a reminder, in March, we refinanced our ABL with Texas Capital Bank to replace the prior ABL with PNC. Concurrently, we negotiated with Monroe Capital, who holds our term debt to provide both fixed charge and leverage covenant easements across 2026 and into 2027. Those combined efforts will provide ample cushion to operate in this challenging operating environment while we continue to focus on the execution and completion of our initiatives to drive additional efficiencies and operating leverage across the business, while also investing in driving growth through new clients and wallet share.

Additionally, the new arrangement with Texas Capital Bank gives us more flexibility to use the excess availability on our ABL to make voluntary early payments on our high-interest term debt, which is currently about a 500 basis point spread between the two credit facilities. Accordingly, during the first quarter, we made a $2 million early payment on the Monroe term debt, which will reduce interest expense and should free up additional cash to allocate toward debt paydown. We anticipate executing similar early payments as appropriate throughout the year as we work to reduce our overall cost of debt and strengthen our balance sheet.

Our operating cash flow in the quarter was slightly positive, roughly $200,000. This was a sharp improvement compared to the prior year despite lower revenue and gross profit dollars and was driven by the ongoing optimization of our billing and collections processes and our improved vendor payment processes, which both continue to drive improvements in our cash cycle. This progress was partially offset by some of the moving pieces of the ABL refinancing, which used a modest amount of cash at the time of the transaction.

Our DSOs finished the quarter in the mid-70s, which was largely unchanged from the fourth quarter. Accounts receivable was up $3 million and in line with the sequential increase in revenues, but the overall trend in DSOs remains downward, falling from the 80s one year ago, and we continue to implement measures to improve our cash cycle. We remain committed to reducing DSOs going forward and believe we have incremental initiatives in our control to drive improvement.

During the first quarter, we also reduced the number of working capital days to 11.5, roughly an 11-day improvement from a year ago. Our financial strategy remains focused on managing our cost structure, leveraging our operational excellence initiatives to drive cash flow and paying down debt. We also continue to seek ways to elevate our billing and collection practices and further optimize working capital. We expect these measures, along with our focus on continuous improvement to improve our cash cycle, strengthen our balance sheet and provide incremental financial flexibility as the operating landscape improves.

With that, I'll turn the call back over to Perry for some closing comments before we open it up for Q&A. Perry?

Great. Thank you, Brett. Our first quarter saw improved performance from the fourth quarter with results getting better throughout the quarter. Some of this was the typical seasonal acceleration, but it was modestly better than the prior year. It is also clear that the business is benefiting from the team's strong execution, and it is evident in the numbers driven by the now fully onboarded recent new wins and wallet share expansions. It remains a difficult operating environment, but we are confident that we are better positioned to drive improved financial performance. We believe that with continued execution, we will be well on our way to delivering improved shareholder returns and achieving a valuation that is more reflective of inherent value of the business.

With that, I'd like to turn the call over to our operator to move us to Q&A. Operator?

[Operator Instructions] And our first question here will come from Aaron Spychalla with Craig-Hallum.

First for us, on the new win in the QSR, congrats on that. Could you -- any details you can give on size, number of locations? You talked a little bit about white space for land and expand. So just curious on how many waste streams. And then it sounded like minimal service provider changes. So it sounds like that can ramp pretty quickly as well.

Yes, that's right, Aaron. So we -- as you know, we don't give specific details about these clients, but this is consistent with all of our new growth targets being 7 to 8 figure. So this is a 7-figure account. We landed a little over 50% of the portfolio. So there's plenty of room for continued expansion. This came from another asset-light provider. So they saw value in the Quest program over the program they were currently on.

And early reports, the other award winner was also an asset-light company and some early indications are that our launch process and transition is much smoother than our competitor. So that leaves me optimistic that there's some growth potential there. And the material streams here are typical municipal solid waste and recyclables.

And then on the share of wallet initiatives, is there a way to think about just potential growth you see there, whether it's penetration rates or average number of waste streams? It just -- it seems like you saw good success kind of coming out of the last year and are optimistic moving forward?

Yes. So as you know, we put some additional focus and discipline around our share of wallet beginning last year. And we don't really talk about all of the share of wallet wins that we've had. We've had several dozen of those wins, but some of them are not material enough to really mention. So the share of wallet that we typically talk about, again, fall into that same category as new business. So these are large opportunities to expand. We have, I would say, 5 or 6 opportunities with some of our largest customers to bring on a whole another segment of their business. And we're in very opportunistic discussions, I would say, with them. So we've got rolled out plans on how to implement this new business.

So look, the business hasn't been sold yet, but the conversations are very positive, and I expect to see a lot more growth in the share of wallet sector. If you'll recall, because of the uncertainty in the general economy, we decided that instead of only focusing on new business, which we're still doing, we would put added emphasis on share of wallet because these are existing relationships. These are customers that already trust us. They already know that we execute. So it's an easier yes than with a new prospect. But I would tell you that we don't give the value of our pipelines. The new business pipeline is very robust. The share of wallet pipeline is about 50% of the size of the new business pipeline. So it's significant.

And then just maybe one last one, how is -- what are you seeing on inflation across the commodity space on the business? Any impact to your customer decisions or your vendor network, just how you're managing that and thinking about that moving forward?

Yes. That's a really good question. Certainly, with the current fuel situation. We've got -- we kind of got out in front of this and started working with our vendors and our customers before this really fast ramp-up in fuel. We've got good protection in our contracts, where uncontrollable costs can be passed through. But one of the value propositions that we deliver to our customers is we always fight on their behalf. So instead of simply just taking on cost increases and passing them through, we do everything within our capabilities to push those off or to minimize them. But I would say that we haven't seen anything significant to affect the business so far. But we've been proactively working on plans should significant cost increases come through. But so far, so good.

[Operator Instructions] Our next question will come from Gerry Sweeney with ROTH Capital.

Do you ever disclose or even directionally how big the industrial business is for you guys in terms of revenue?

No, Gerry, not directly. We've tried to do a good job over the last, I don't know, a year or so plus to call out the variance that's taking place with those select customers within the industrial group. As a reminder, the industrial group is larger than some of the variants than the clients that are driving the variances. We're only speaking to the select couple of clients that sit in an isolated industry market as the variance, but we haven't called that out largely.

The reason I ask is, I mean, we're starting to see some data from like ISM that's turning positive for the first time in years. I think there's some freight data that's showing maybe some price increases indicating the real goods economy is there I'd say starting to expand a little bit. So these are maybe forward-looking indicators. So I'm just curious if you have any thoughts on that? Or are these -- some of these industrial clients, sort of, in their own little select world that may not be benefiting from what I'm talking about.

Yes. Gerry, I think the -- these few customers that Brett referenced, they're in a specific category of the industrial manufacturing sector that has really been pretty soft. I think we've said they operate in the bag sector. If we look at sequential volume increases from Q4, they were largely what we would expect. But if you compare the increase to last year, the increases that we realized in Q4 and this year were slightly better. So we are not predicting any significant increase in volume yet. We're cautiously optimistic. We did see some good trends, but we don't control the production. So volumes, if they continue to perform like they did, particularly in March, I think we'll see some nice trending.

We've built this business over the last year to take every advantage of any tailwind that we can get. We just haven't had any. March, we may have had a little breeze, and I think we took advantage of it. So if those early indicators flow through to these specific customers in the bag sector, I think we'll benefit from that.

Sure. I'm sure there's a lot more operating leverage there once some of the...

And, Gerry...

I'd also remind you as well, one of the positives for us is from a year-over-year perspective, if you look back at when we started really talking about those struggles on the industrial side, it was in Q1 of last year. So from a year-over-year comparison, we're kind of sunsetting some of those challenges. We did see some additional reductions across last year, but the bulk of the decline in those clients came largely in Q4 of 2024 and even Q1 of 2025. So despite some continued pressure there, maybe we don't get back to the same volumes we had 1.5 years ago. But from a year-over-year comparison, it's not going to hold us back from showing growth.

Switching gears, that QSR win, I think you talked a little bit about it, but I don't know if I caught all of it, but you said I think you had 50% of the portfolio. And it sounded like another asset-light company got the other 50% of the portfolio. I'm just wondering if that's sort of stores, locations or was it sort of service lines? And...

Yes, Gerry, that's a good question. Those represent locations. So, yes, I don't have that based on service lines. I would expect that it would probably be linear that we got a little over half the locations as well as a little over half of the service lines.

Is that QSR in meat, fish or chicken?

The answer is yes. These are major brands that are very recognizable. And in fact, our in came from a referral from one of our corporate customers, who operate some of those brands and made the recommendation that this franchisee should look at our model, yes.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Perry Moss for any closing remarks.

Great. Thank you, operator. And thanks to all of you for joining this afternoon. We always appreciate your support, and continued support and interest in Quest, and we look forward to updating you all in the next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Good afternoon, ladies and gentlemen, and welcome to Quest Resource Holding Corporation Fourth Quarter 2025 Earnings Call Conference Call. [Operator Instructions] Please be advised that this call is being recorded today, Thursday, March 12, 2026.

I would now like to turn the conference over to Ryan Coleman, Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us on the call.

Before we begin, I'd like to remind everyone that this conference call may contain predictions, estimates and other forward-looking statements regarding future events or future performance of the company. Use of words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs and assumptions and involve significant risks and uncertainties. Actual events or the company's results could differ materially from those discussed in the forward-looking statements as a result of various factors, which are discussed in greater detail in the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties.

The company's forward-looking statements are presented as of the date made, and the company undertakes no obligation to update such statements unless required by law to do so. In addition, this call may include industry and market data and other statistical information as well as the company's observations and views about industry conditions and developments. The data and information are based on the company's estimates, independent publications, government publications and reports made by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information.

Certain non-GAAP financial measures will be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release.

With that, I'd like to turn the call over to Perry Moss, Chief Executive Officer.

Great. Thanks, Ryan, and thanks, everyone, for joining this afternoon. Our fourth quarter financial performance reflected a continuation of the soft volume environment we have been navigating for the past year. And while our fourth quarter always presents a seasonal slowdown, we observed a more pronounced sequential decline this year than we've experienced in years past. The soft manufacturing and industrial output environments continue to weigh on volumes from our industrial customers.

Importantly, we have not lost any customers in our industrial end market, which lends us confidence that we will see much improved financial performance when this sector recovers. At the same time, areas of the portfolio that typically performed better during the fourth quarter, such as retail and restaurants, also observed lower volume levels. As such, they exacerbated the decline rather than provide the usual offsets we see.

This environment also has a dampening effect on new business pipeline. Our sales cycle with current prospects is elongated relative to more recent history, and most companies remain in a wait-and-see approach. The overall pipeline remains very healthy and potential clients have not fallen out, but economic uncertainty continues to lead to some decision delays. We saw better new business wins in the second half of 2025 compared to the first half.

We've seen many opportunities that have been pushed into 2026. We remain very engaged with these prospects, and we believe that we will be able to successfully win and onboard many of these potential clients as the macro backdrop improves and confidence returns. In response, we are focused on controlling what we can control. We continue to execute the operational excellence initiatives we've discussed in recent quarters, and we're very encouraged by the results these efforts are delivering and intend to continue to drive additional efficiencies into our future. Our operating foundation is strong, and we have built a resilient team that is prepared to take on challenges like those we've faced over this past year.

Earlier last year, we placed added emphasis on share of wallet opportunities with existing customers, which remains a central focus of ours. We are methodically evaluating every existing key account and are prioritizing our largest opportunities with the highest probabilities of winning. Over the past few quarters, we've seen encouraging progress as we are broadening the number of waste streams that we're handling for individual clients, adding new value-add services to existing client accounts and expanding our coverage with large multi-location customers to handle a larger portion of their waste.

One great example is the addition of several hundred new locations to an existing customer in our automotive services end market. This customer recently made a large acquisition, and the acquired company's network is now being added to our scope of service with this customer. This is a strong testament to our asset-light model, breadth of our vendor network and overall value proposition as it demonstrates our ability to deploy assets and solutions nationwide as circumstances change quickly.

Our progress to date leaves us confident that these initiatives will contribute to greater levels of organic growth for us going forward. These are customers that know our services well and should be a shorter sales cycle given the pre-existing relationship. They will also be strong contributors to gross profit dollar growth as we add and optimize services and further our commitment to expanding our business in nonindustrial end markets like retail, hospitality, grocery stores, health care and more. These are all markets that we anticipate will provide a good counterbalance to our earnings profile and seasonality as they help to offset the typical slowdown in industrial production in Q4.

Meanwhile, we also continue to onboard wins from the past 18 months, which are progressing as expected. The large retailer and restaurant chain that we discussed on prior calls are launched and up and running. They are becoming more meaningful contributors to revenue. Although as we've discussed, the initial volumes from new business wins tend to be lower margin given the onetime start-up costs associated with adding new service lines.

We also continue to make advancements in our operating platform to better leverage our technology and data. These investments are designed to improve customer experience and continue to improve the record low service disruption rates we are currently experiencing.

Our portal is a single point location where customers can view the full scope of services provided, waste materials generated and handled, associated cost and the ultimate destination. The value of this data is undeniable for Quest and its customers, and it empowers us to drive meaningful operating efficiencies in the form of cost reduction or avoidance as well as streamlined service that is tailored to their unique needs.

Our zero-touch capability will drive real efficiencies for their operations while improving profitability and customer service levels for Quest. It will also help to improve our cash cycle given the end-to-end visibility from service request through billing and payment. These operational excellence initiatives are driving better visibility into our customer needs, enhancing the productivity of our sales team, elevating our vendor management practices, maximizing efficiencies for our operating teams and improving cash generation.

Overall, 2025 was a challenging year for Quest as volume declines from our industrial end market led to revenue declines. Additionally, we divested an underperforming business, making year-over-year comparisons difficult. Despite the difficult operating environment in these specific portions of our business, we drove growth across the majority of our business in 2025 by adding approximately $29 million in new revenues from the prior year. These gains came from the full year impact of client wins from 2024, incremental new wins in 2025 and wallet share expansion of existing clients.

There is progress being made, as the operational excellence initiatives we've implemented are delivering real results and creating a much stronger foundation to grow from. Our sales function is more focused and effective, and our value proposition of driving operating efficiencies and cost savings for our customers continues to resonate. We are confident that the business is well positioned to deliver improved results as the macroeconomic environment lends incremental confidence for our customers and activity picks up.

Looking ahead, our key priorities remain unchanged in 2026. We remain focused on growing the business with new and existing customers, driving margin improvements as we execute our operational excellence initiatives, continuing the development of our operating platform, improving cash generation and reducing our debt balance.

With that, I'd like to turn the call over to Brett to review our fourth quarter financial results in greater detail. Brett?

Thanks, Perry, and good afternoon, everyone. Revenue for the fourth quarter was $58.9 million, a 16% decrease from 1 year ago and a sequential decrease of 7% compared to the third quarter. The decline compared to the prior year was driven by clients in our industrial end market, where market conditions remain challenged as well as from the divested mall-related business. Both factors combined to account for a $10.7 million reduction in quarterly revenue compared to the prior year.

Sequentially, revenue from the industrial clients declined by approximately $4.3 million compared to the prior quarter. While we typically see lower seasonal volumes during the fourth quarter, the sequential revenue decline this year was larger than expected, driven by a more pronounced reduction in industrial volumes than we had anticipated. Additionally, we saw reduced volumes across the larger portfolio where we expect to help offset this impact.

In the fourth quarter, we also launched a new customer and a couple of wallet share initiatives, which we expect to get the full benefit of in 2026. Finally, from a full year perspective, isolating the industrial client headwinds and mall-related divestiture, the remaining 2/3 of the business saw modest growth of $7.4 million or about 5%.

Our partnerships with our industrial clients remain very strong, but macroeconomic conditions and continued softer levels of manufacturing activity in 2025 drove lower overall volume.

Importantly, these customers remain active and engaged. As a result, we fully expect to continue to support these clients when conditions normalize and return to growth. In the meantime, we have greatly elevated our focus on share of wallet opportunities with these clients.

Moving on to gross profit. In the fourth quarter, gross profit dollars totaled $9.1 million, a decline of 15% compared to the prior year and a sequential decline of 21%. This resulted in a gross margin of 15.5%.

The sequential decline in gross profit was more pronounced than the outlook we provided on the Q3 call and was the result of the following factors: First, we saw reduced gross margin leverage driven by the decline in overall volume. We also had lower margins isolated within the industrial sector, which contributed approximately $1 million to the reduction in gross profit. Finally, we had some onetime costs of approximately $0.5 million, mostly from implementation costs for the new clients and wallet share launches in the quarter.

The impact of these was factored into our outlook but were more pronounced than expected. And again, reduced volumes across the broader portfolio inhibited our ability to offset this pressure. However, we were able to partially offset the decline with optimization improvements and other efficiency measures.

As a reminder, contributions from newer clients and wallet share expansions are typically minimal in the first few months of launch due to onetime costs. The timing of optimizing those -- the initial book of business and initial lower margins as we execute a land-and-expand strategy. We believe we are well positioned coming into 2026 to get a full year of gross profit contribution from these recent launches. Additionally, we still have a previously announced new client win and a wallet share expansion win that are both expected to launch in the first half of the year.

As we are now well into the first quarter, we are confident that sequential comparisons for gross profit dollars will improve. Our outlook is based on a slightly improved volume environment in Q1, especially compared to a seasonally low Q4, continued execution of our commercial and customer initiatives to optimize the business and improved contributions from our new client and wallet share wins launched in the fourth quarter.

We expect to continue to experience some margin pressure in 2026 in a challenged industrial volume environment and from the mix impact of our land-and-expand strategy. However, we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients, optimizing the client wins from the previous years and continuing to drive operational improvements across the business.

Moving on to SG&A, which was $7.7 million during the fourth quarter, a 24% reduction year-over-year and a 17% reduction on a sequential basis. The declines year-over-year are primarily related to reductions in headcount, bad debt expense and other costs specifically related to the divested mall-related business and the reduction in workforce in the first half of 2024.

We also had reductions from increased efficiencies and the aggressive takeout of costs across the organization throughout the year. These were partially offset by severance and retirement expenses in the quarter.

In addition, subsequent to the year-end, we finalized an agreement to sublet our office space and rationalize the physical footprint for our headquarters by securing a new office lease in a more cost-effective space. With this, we expect to realize an annualized cost savings of approximately $400,000 in 2026. Looking ahead to the first quarter, we would anticipate SG&A to be below $9 million, with the sequential increase driven by the resumption of our normal bonus accrual.

Moving on to a review of the cash flows and balance sheet. At the end of the fourth quarter, we had $1 million in cash, which was roughly unchanged from the prior quarter and approximately $37.7 million of available borrowing capacity on our $45 million operating borrowing line. For the fourth quarter, we generated just over $1 million in cash from operations and $1.7 million of free cash flow.

As we've discussed on past calls, we've taken steps to optimize our payment and collections process with vendors with the goal of improving our order to cash cycle and overall working capital management. We've been able to homogenize this process and are now paying the vast majority of our vendors to turn. We also have shortened our invoicing time and will continue to optimize our cash collections process.

Our DSOs finished the quarter in the mid-70s, which was a modest increase of a few days from the end of the third quarter. Unfortunately, the larger-than-expected sequential revenue decline masked improved receivables management as our AR fell sequentially by $1.7 million.

Stepping back, the trend in DSOs remains downward, falling from the low 80s 1 year ago, and we continue to implement measures to improve our cash cycle. We would expect these systems and process improvements to contribute continued cash generation and further DSO reduction in the coming quarters. Our underlying progress can also be seen in our reduction of working capital days, which declined from 23 days at the end of Q4 of 2024 to 11 at the end of the most recent quarter.

We also paid down approximately $2 million of debt during the fourth quarter, bringing our full year debt reduction to $13.2 million, a 16.4% reduction for the full year.

As of the end of the fourth quarter, we had $64 million in net notes payable versus $76.3 million at the beginning of the year. We expect to continue to aggressively reduce debt as cash generation continues to improve.

Lastly, we continue to look for proactive measures to improve our financing costs and give ourselves greater flexibility on our lines of credit as our initiatives to improve profitability and cash flow take hold. To that end, we recently refinanced our ABL with Texas Capital Bank to replace the prior ABL with PNC.

Concurrently, we negotiated with Monroe Capital, who holds our term debt to provide both fixed charge and leverage covenant easements across 2026 and into 2027. These combined efforts will provide ample cushion to operate in this challenging operating environment, while we continue to focus on the execution and completion of our initiatives to drive efficiencies and operating leverage across the business while also investing and in driving growth through new clients and wallet share.

Additionally, the new arrangement with Texas Capital Bank gives us more flexibility to swap ABL debt for term debt and to reduce interest expense as we execute throughout the year.

With that, I'll turn the call back over to Perry for some closing comments before we open it up for Q&A.

Great. Thank you, Brett. Our fourth quarter was not the finish to the year that we would have liked or expected. 2025 was a year of considerable change at Quest, and we made tremendous progress on several key initiatives that span the entire enterprise from standardizing and streamlining our internal processes, enhancing customer engagement, elevating our go-to-market and share of wallet focus, reducing cost, improving our cash cycle and more.

We know that these initiatives are working and that Quest is, without a doubt, a leaner and more productive operation. We began to see the fruits of these efforts in the third quarter, but the reality is that the volume environment remains difficult and is masking the full benefit of the team's hard work.

In the meantime, we are controlling what we can control, remaining highly engaged with our customers, establishing a foundation that can generate shareholder returns in difficult environments, and we know that we are well positioned to accelerate our financial performance and drive shareholder value as conditions improve.

With that, I'd like to turn the call over to our operator to move us to Q&A.

[Operator Instructions] Our first question today comes from Aaron Spychalla, Craig-Hallum.

Maybe first for me, on just some of the KPIs that you've implemented. Can you just give an update there? Maybe what's been going better versus plan and anything that's been a little bit more stubborn? Any lessons learned on that front thus far?

Aaron, it's Perry. Look, the -- as we stated in the call, the KPIs, the operations, the operational efficiency initiatives, all of those are on track. And the business is performing surprisingly well in this very difficult volume environment. So as you can see from our SG&A, we have been very intentional about how we're managing this business.

We intend to continue to control what we can. And the one thing that I can't control is the volume from our customers. As their businesses struggle, so does the volume that they provide to Quest. So what we can do is we can manage our efficiencies and our costs, and we'll continue to do that regardless of the environment.

So all of the KPIs and initiatives that we've talked about, our order to cash, our procure to pay and source to contract are all continuing to progress very well. All of our KPI trending is positive. We haven't lost any ground in those areas whatsoever. But unfortunately, it's difficult to see, as I said, it's masked by the disappointing volume that we're currently experiencing.

Okay. That's good color there. And on source to contract, can you just maybe give a little bit of an update there broadly? How is the health of the vendor network, just given the macro and things like that?

Yes. So I think I said on our last call that our vendors are beginning to ask for business again, and that continues. So a number of things have continued to improve, certainly, our relationships with those vendors. But we also conducted a project with our vendors to continue to lower cost, and that delivered some very positive results for us.

We have our vendors now accepting payment to term, where in the past, they were pushing Quest to pay them ahead of schedule. And we continue to experience the lowest service disruptions, really, in our history. And the importance of that is, obviously, service interruptions are problematic for our customers. So we greatly appreciate that we've made a lot of progress there, but there are associated costs that come along with those service disruptions, and those associated costs are at historic lows as well. So all things are going very well with our vendor base. And in fact, we continue to grow the vendor base that we currently have vetted and within our network.

All right. And then maybe one last question. I saw one of your industrial customers potentially opening up a couple of plants here in 2026. And so just curious, you highlighted some cross-sell opportunities and focus on expanding market share. Just wondering if you could elaborate a little on some of those opportunities as well.

Yes. Well, we don't -- as you know, Aaron, we don't cite or talk about any specific customers. I will tell you that if any of the industrial base is adding plants or if the macroeconomic environment turns around, we certainly stand to benefit from that because our relationships with these industrials is extremely healthy.

I sat in on a quarterly business review just last week, and this client could not be more pleased with the services that we're providing. But their business itself continues to struggle. But I would tell you that if these businesses begin to improve either by building plants or improving or increasing production, we stand to benefit from all of that.

Thank you. There are no further questions at this time. I will now turn the call over to Perry Moss, Chief Executive Officer, for closing remarks. Please continue.

Great. Thank you, operator, and thanks to everyone for joining this afternoon. We really appreciate your continued support and interest in Quest, and we look forward to updating you all next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Quest Resource Holding Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 10, 2025.

And I would now like to turn the call over to Nick Nelson with Alpha IR Group. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us on the call. Before we begin, I'd like to remind everyone that this conference call may contain predictions, estimates and other forward-looking statements regarding future events or future performance of the company. Use of words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs and assumptions and involve significant risks and uncertainties. Actual events or the company's results could differ materially from those discussed in the forward-looking statements as a result of various factors, which are discussed in greater detail in the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made, and the company undertakes no obligation to update such statements unless required by law to do so.

In addition, this call may include industry and market data and other statistical information, as well as the company's observations and views about industry conditions and developments. The data and information are based on the company's estimates, independent publications, government publications and reports made by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information.

Certain non-GAAP financial measures will be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release.

With that, I'd like to turn the call over to Dan Friedberg, Chairman of the Board.

Good afternoon, everyone, and thank you for joining us for our third quarter call. Quest delivered a solid third quarter that showed important progress on several fronts. During the first half of the year, we took decisive actions across the business that included reducing costs, improving operations and generating cash flow. We're on a much more solid footing as a result of these initiatives, and our third quarter results were consistent with our stated expectation for an improved trajectory of the performance of the business. The impact of these actions is already delivering important improvements in the business and validates our confidence in the path ahead.

We will continue pursuing business efficiencies, reducing variability, generating growth and driving business margins. We are confident in our ability to continue to drive improvements in the business and maintain this trajectory as we finish 2025 and move into 2026.

With that, I'll turn the call over to Perry to discuss these efforts in more detail.

Thank you, Dan. We delivered a solid third quarter with strong sequential improvement in our financial performance despite what remains a tough operating environment. Since taking on the CEO role earlier this year, we've been on a mission to standardize and streamline our internal processes, relentlessly track our progress, as well as foster a culture of continuous improvement. This has been a comprehensive effort that spans every aspect of the business from customer engagement, sales, payments and collections, and more. While these cultural changes can be complicated, I have been thrilled with the response from Quest employees, as well as with what we believe are the early benefits of these efforts. Our operational excellence initiatives are driving better visibility into our customers' needs, enhancing the productivity of our sales team, elevating our vendor management practices, maximizing efficiencies for our operating teams, and ultimately, improving financial results and cash generation.

Overall, the macro environment continues to present challenges. Volumes from our industrial customers remain subdued, and the pace of adding new clients has been slower than last year and slower than what we had anticipated. Our pipeline remains very healthy and potential clients have not fallen out, but economic uncertainty is leading to some decision delays that are extending the sales cycle. In response, we're focusing on what we can control. We recently redefined our sales process to direct our sales teams with a greater focus on share of wallet opportunities. To do this, we focused on greater levels of collaboration between our relationship managers and our sales teams. This realignment combines the capabilities and talent of each team and gives our sales team better visibility into the ongoing and dynamic needs of customers.

As a result, we're broadening the number of waste streams that we're handling for individual clients, adding new value-added services to existing client accounts and expanding our coverage with large multi-location customers to handle a larger portion of their waste. There are many more opportunities that include geographic and service line expansion within our installed base. We expect these share of wallet initiatives to contribute greater levels of organic growth for us going forward as these are clients that already understand and appreciate the Quest value proposition and have seen the tangible benefits of the services we provide. They will all be strong contributors to gross profit dollar growth as we add and optimize services.

From a process standpoint, we've also re-segmented and better defined the different stages for our sales process. This has provided us with greater visibility into the sales cycle for individual accounts and offers a more detailed look at our total pipeline. We've replicated this same [ staged ] approach for share of wallet opportunities, demonstrating our focus here and now actively maintain both a new business pipeline, as well as a share of wallet pipeline. These sales-focused initiatives and process improvements are contributing to improved results as we continue to bring new clients and expanded services with others.

We recently launched our 2 wins that we announced during our last earnings call. One is a major retailer and the other is a large full-service restaurant chain. And just last week, we signed another new contract with a company in the food products end market. Additionally, we continue to execute on our refocused share of wallet efforts by adding all the cardboard and organic food waste from one of our largest new customers from 2024 and adding a significant new number of stores from another existing customer. These efforts will also be important contributors to our commitment to broadening our customer base by adding to the total number of customers we serve and also through expanding our business in nonindustrial end markets. We are committed to diversifying our customer and revenue profile by expanding in markets like retail, hospitality, grocery stores and more. These are all markets we are present in today and where we see compelling opportunities for our sales team to further penetrate. These are all markets and businesses that tend to perform better during the fourth quarter, where industrial production typically moderates, and will provide a good counterbalance to our earnings profile and seasonality.

Another critical area of focus of ours is our source to contract process where we engage our vendors and nurture those relationships. These relationships are essential, given our asset-light model. Strong relationships with these vendors are central to our ability to win new clients, deploy the right solutions and deliver a best-in-class customer experience. We've added new vendor relationships, reestablished older ones and expanded others, which has elevated our level of visibility and value proposition with these vendors. We're finding that many vendors are once again proactively reaching out to Quest, asking for new business and looking to grow their relationships with us. Strong vendor relationships have a direct flow-through to service levels for our customers. And today, we currently are experiencing the lowest service disruption rates and associated cost we've ever had.

On the process side, we've taken steps to optimize our payment and collection processes with vendors with a goal of improving our order to cash cycle and overall working capital management. We've been able to homogenize this process and are now paying the vast majority of our vendors on term. We have also shortened our invoicing time, and we'll continue to optimize our cash collections process.

We also continue to leverage our technology and data platform, which is enhancing the customer experience through its zero-touch nature. Customers can utilize the portal to access their data to see the benefits of the Quest program. They now see the various waste materials generated, their associated costs and end destinations. We've amassed a tremendous amount of data, which we believe carries incredible value. Ultimately, we envision a subscription-like model for access to this data, adding another margin-accretive revenue stream.

Looking ahead, I am confident that the continued implementation and progress of our operational excellence initiatives will continue to drive improvements in the business in the fourth quarter and beyond. Our sales pipeline is moving slower than we would like, but the Quest value proposition continues to resonate with current and potential clients alike. Our relationships with our large industrial clients remains as strong as ever. We are growing our share of wallet with existing clients. And discussions with potential new clients leaves us confident that we will win more than our fair share of new business when these companies ultimately elect to move forward.

We do expect to continue to experience some margin pressure as we execute our land and expand strategy and volumes at our largest industrial customers are expected to remain challenged. However, we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients and continuing to drive operational improvements across the business.

To wrap up, our key priorities remain to grow the business with new and existing customers, drive margin improvements as we execute our operational excellence initiatives, continue the development of our operating platform, improve cash generation and pay down debt. We remain confident in our ability to execute the Quest value proposition and implement these organic initiatives as macroeconomic conditions and industrial volumes normalize.

With that, I'd like to turn the call over to Brett to review our third quarter financial results in greater detail. Brett?

Thanks, Perry, and good afternoon, everyone. We are encouraged by the sequential improvements in the business as the internal initiatives we've enacted are delivering tangible results. Revenue for the third quarter was $63.3 million, which was a 13% decrease from 1 year ago, but a sequential increase of 6.4% compared to the second quarter. The decline compared to the prior year was driven by the divested mall-related business and by lower revenue from clients in our industrial end market, where market conditions remain challenged. Our relationships with these clients remain strong, but macroeconomic conditions are leading to lower overall volumes. We do ultimately expect conditions to normalize and return to growth and fully expect to continue to support these clients when they do. In the meantime, we have greatly elevated our focus on share of wallet opportunities with these new clients.

Sequentially, our revenue growth was driven by new clients that we have added over the past 18 months. Year-to-date, these new clients have added over $24 million in incremental revenue year-over-year. The onboarding and progression of these new clients is advancing as planned and is beginning to contribute meaningfully to our financial results. To speak further to that progress, gross margins with these new clients have made consecutive gains for multiple quarters in a row. As a reminder, while margins with these newer clients are initially lower and can create a drag on overall gross profit margins, we have a demonstrated land and expand strategy to both grow our share of wallet and add incremental value-add services over time, which enhances the profitability of these relationships.

In the third quarter, gross profit dollars totaled $11.5 million, a decline of 2% compared to the prior year, but a sequential increase of 3.9%. This sequential growth was better than our expectation of flat to slightly down as our gross profit initiatives gained traction. Our gross margin was 18.1%, which was 200 basis points better than the prior year and a sequential decline of 40 basis points. The year-over-year growth in gross profit margin was largely driven by the sale of our lower-margin mall business earlier this year, while the sequential decline was mainly a function of the aforementioned margin dynamics of newer clients, combined with margin pressure from renewals previously discussed last quarter. These were largely offset by optimization improvements and other efficiency measures.

As we look to the fourth quarter, we would expect sequential comparisons for gross profit dollars to be flat to slightly down, but mostly in line with our previous expectations. As a reminder, we tend to see seasonally low volumes across several of our clients in the fourth quarter. Additionally, there remains significant uncertainty related to client volumes in the industrial end markets. However, the return to sequential growth in the third quarter leaves us confident that our commercial and customer initiatives are helping to offset these pressures. Our confidence is based on our visibility into efforts continuing to take hold as we optimize the business and with new clients and expansions with existing clients coming online in the fourth quarter. We will also continue to benefit from the reduction of temporary cost increases we discussed during the prior calls. Overall, we believe these positive trends position us to drive growth going into next year.

Moving on to SG&A, which was $9.2 million during the third quarter. This was $1 million lower compared to the prior year, which equates to a 10% reduction year-over-year. And on a sequential basis, it was a slight decrease from the second quarter. SG&A was consistent with our outlook of mostly flat sequentially. The declines are primarily related to the reduction in workforce in the first half of the year, increased efficiencies and the aggressive takeout of costs across the organization. We expect SG&A in the fourth quarter to be down again compared to the third quarter as we continue to reduce costs.

Moving on to a review of the cash flow and balance sheet. At the end of the third quarter, we had $1.1 million in cash, a sequential increase from $450,000 at the end of the second quarter, and approximately $20 million of available borrowing capacity on our $45 million operating borrowing line. For the third quarter, we generated approximately $5.7 million in cash from operations, a sequential improvement of roughly 46%. These results are driven by improved processes resulting from our initiatives aimed at billing faster, collecting from our clients sooner and improving vendor management practices and payment terms. Our heightened focus on these activities is reducing our cash cycle. Further benefiting from these initiatives, our DSOs also decreased nicely from the second quarter to the third quarter, building off a modest decrease from the first to the second quarter. The approximate 9-day decrease drove DSOs into the lower-70s. Additionally, as the overall business continues to improve, we believe our model supports consistent operating cash generation. We would expect these systems and process improvements to contribute continued cash generation and further DSO reduction in the coming quarters.

As a result of the improved cash generation, we paid down $4.6 million of debt during the third quarter, bringing our year-to-date debt reduction to $11.2 million. As of the end of the third quarter, we had $65.4 million in net notes payable versus $76.3 million at the beginning of the year. We expect to continue to aggressively reduce debt as these cash initiatives continue to take hold.

With that, I'll turn the call back over to Perry for some closing comments before we open up for Q&A.

Great. Thank you, Brett. Our third quarter was an important validation of the operational excellence initiatives we've been enacting across the business. There remains plenty of work to be done, and the operating landscape remains tough. But we are highly confident in the value of our asset-light model and our ability to deliver improved financial results. Our initiatives are working, and we're well positioned to continue to drive improvements in the business. Going forward, our focus will remain on generating cash and paying down debt, while continuing to advance our customer and other commercial initiatives.

With that, I'd like to request the operator to provide instructions on how listeners can queue up for questions. Operator?

[Operator Instructions] Your first question comes from Gerry Sweeney with ROTH Capital.

You've spoken about end markets, specifically maybe industrial remaining weak or challenging. Has that stabilized? Or do you see some more headwinds in there outside of seasonality in the fourth quarter? And I'm just curious of your other end markets, how they are holding up altogether.

Yes. Gerry, I'll take that. This is Perry. The macroeconomic environment is still a bit uncertain, but we believe the industrial markets and really all of our markets are stabilized. Of course, from the industrial sector, we'll see some seasonality effect in Q4, which is why in my comments -- we're trying to diversify our portfolio a bit to add customers that actually ramp up in Q4. But I think more importantly, we're really focused on what we can control, which is our share of wallet with these clients. And we've been very successful with adding incremental services with these customers, and we expect to continue to do so. We talked last quarter about our strategy to renew a contract with a large client where we gave up some margin on the front end to gain an opportunity to equally share in the savings. We believe that's going to work very well. It will take more than a quarter for us to see the gains from those shared savings, but we believe that, that will benefit. So I think everything is stabilized now. The sectors that I talked about earlier, retail, grocery, logistics, we work in a lot of verticals. We think that they will ramp slightly in Q4. But industrials will remain a bit challenged just because of the seasonality.

Got it. And then, wallet share, that was something you just brought up now, but also in the prepared comments. Taking wallet share, expanding wallet share, however you want to phrase it, it's always been, I think, part of what Quest did. Have you changed that strategy at all to accelerate it? Or any other details on that front?

Yes. So the answer is, yes. So when I arrived a couple of years ago, I brought a whole new discipline to the sales process, the new customer sales process. So we've taken that approach and used that now for share of wallet. So we have a very disciplined approach where we have a very well-defined share of wallet that -- which is something we didn't have before. But in addition, we're now collaborating with our -- between our relationship managers and our sales teams, which is another new development. So we have people that own relationships with the customers. They may not have the same skill sets that our sales team do. So they kind of go in together and provide additional services. And we see that, that's paying off. With one of our largest new customers from 2024, we've added some significant share of wallet by gaining access to all of the cardboard generation and also all of the food waste, the plastic, just a number of different streams. Another customer in the retail sector, we've added a significant new number of store locations. So I would say it's an enhanced and refined approach from the way that we did this in the past.

Got you. Would that include, I guess, some KPIs around it or incentives?

Absolutely. Yes. So we know -- so we have mapped every opportunity that we have with every customer. And we now know which ones we're pursuing. We know which stage in the sales cycle that opportunity is. And with any sales opportunity, it's always about advancing the sale from one stage to the next until closing. So there are -- there's discipline and KPIs around that whole approach.

Got it. And then, one more quick question. I'll jump back in line. Obviously, operational improvement, big theme this quarter, making some progress. How much -- what -- as we look at fourth quarter and 2026, what opportunities are out there? And what should we be thinking about in terms of how it flows through either to the balance sheet or the income statement?

Yes. We're on a path of continuous improvement and optimization. So one of the things that we intend to do -- so up to now, we have defined all of our major processes. So that's source to contract, procure to pay, order to contract and sales to contract. And we've got those all mapped and optimized. We've got KPIs. The next step is actually putting KPIs in all of our team members to make sure that we can get them fully optimized, ensuring that they're hitting excellence every day. So we think that's a future impact that will help us improve our financial performance. And again, with our land and expand, as we close on additional significant customers, yes, there may be some margin pressure initially, but it's going to be a good thing because we're significantly growing our revenue base.

Your next question comes from Aaron Spychalla with Craig-Hallum.

First for me on the new food win, congrats on that. Can you maybe give any details on size and timing and maybe percentage of footprint for that customer as we think about land and expand? And then, just any -- was it a competitive win? Any kind of more detail there is appreciated.

Yes. So it was absolutely a competitive win. And we generally don't talk about the size of our new wins, but I think I've mentioned on prior calls that all of our opportunities are 7 or 8 figures. So this one falls into one of those categories. We're starting out -- even though this one is a land and expand, we're starting out at slightly higher margins than we typically do. Of their total portfolio, this represents probably 20%. So there's a really nice share of wallet opportunity. There are a couple of operating plants that saw our value proposition and they jumped on it right away. So while we continue to pursue expansion with their corporate folks, these 2 plants saw the value of our proposition and jumped right away. So I think there'll be more to come with that win, but it was competitive. And to be a little more, I guess, granular, this is -- they're in the food processing business.

Good. I appreciate the color for that as you continue to build in that space. And then, maybe just second on OpEx. Can you kind of talk about that a little bit with all the operational initiatives you have going there and additions to the team and just working to optimize things there, along with the technology investments? Just curious how you think about OpEx trending as we move forward into 2026?

Yes. I mean, this has been our plan all along. So we've got 2 full quarters now of operational excellence. As I've said before, it's focused on standardizing and streamlining our processes and delivering continuous improvement. That's really kind of -- our foundational approach on everything right now is continuous improvement. So the last thing we're looking for is making major improvements and then falling back the following quarter. But the results of those efforts have been improved financial results and cash generation. So we've got -- of those major processes that I talk about a lot, the order to cash, procure to pay, et cetera, within those processes, we have 25 different KPIs where we're tracking very specific projects. And all 25 of those KPIs have been trending positive since the beginning of April, which is when we began to implement. So I expect to see continued improvement. It's hard work. And I think as we continue to build out our operating platform and bring in some more automation in addition to those operational improvements, we'll see some efficiencies come from our platform and automation.

Got you. And then, just maybe building on that real quick on the 25 different KPIs, I know it's been since April and good results here, progress for the first couple of quarters. Just -- so I mean, what inning do you think you're kind of in implementing that across -- kind of across all the business?

Yes. Last time, I think you asked me that same question, and I think I said we're in the bottom of the fourth. It's been a long inning, and we're probably still in the bottom of the fourth or top of the fifth. There just seems to be more and more things that we see that need to be done or that we want to do. These initiatives have really begun to gain traction in the business. So you can imagine, our team has been focused on doing all of their daily work, and then we bring in all of these operating initiatives and improvements. And these are projects and things that they're doing kind of at the moment on top of their day-to-day. And it takes a while to gain traction and see the results. And this is probably the first quarter that all of our employees are beginning to see the results of their work, and they're getting really excited about it. So one of the things that I'm very hopeful for is that this is -- we're going to be carrying momentum into Q4 and then into next year. We've been all working really hard. So it's nice to finally begin to see some tangible benefits. But it's -- while it seems like we've been doing this for a couple of years, it's only been 6 months of -- or 2 full quarters of operational improvement. So with a continuous improvement mindset, I'm hopeful that we'll continue this pattern as we move forward.

Your next question comes from Owen Rickert with Northland Capital Markets.

Last quarter, you suggested we might see a sequential decline in gross profit dollars, but 3Q obviously came in a lot stronger. Can you walk us through more specifically what drove that outperformance and where results came in better than expected? And then, just on top of that, was the slight sequential margin decline primarily just from ongoing maturation of newer clients?

Yes. This is Brett. I'll take that question. So I'll kind of start on the second piece of that, which is margin, which was expected and largely was part of why we had directionally said maybe we'd be -- or that we would be flat to down in Q3 relative to Q2, and that's because of some of the margin pressure on some select renewals that we took in Q2 and had to flush through the P&L in Q3, and we still got a little bit of that for Q4. So that's why we expect it down. But what we got was a lot earlier traction on the initiatives. We continue to get improvement on operational efficiencies that Perry has discussed. So it was great to see those come in a little bit ahead of plan and materialize in the P&L. Additionally, we got stabilized a little bit more on the industrials as well than what we would have expected.

Got it. And then, secondly for me, can you guys just provide a quick update on the vendor management platform? How is that going?

Yes, it's going fine. It's going as planned. And just as a reminder, our vendor management platform is just one aspect of our process improvement initiatives and overall end-to-end workflow. So there will be ongoing opportunities to further automate beyond just the vendor management system. But our procure to pay process and source to contract process are 2 processes that are heavily involved with our vendors. Our relationships have never been better. So in addition to the automation that we have with our vendors and their invoices with our system, our relationships have improved. We have vendors asking for more business. We have our vendor team sourcing better rates than they have in the past. And as a result, the service disruptions that we've talked about in the past and the associated costs that come with those disruptions, they're at the lowest point really in the history of our company. They're very, very low now. So the system itself continues to progress well, but it's also the process, combined with the system, that's really reaping the benefits.

Your next question comes from Gregg Kitt with Pinnacle Family.

Perry, Dan and Brett, congratulations on the good quarter that showed improvement. The first question, kind of an open-ended question for you, Perry. So we talked -- I heard you on your baseball inning analogy. Maybe if I could approach it differently, how would you rank where you think the company was from a commercial execution and then operational execution standpoint when you came in? Clearly, there were some opportunities to improve. And then, where do you think it is? If you were to rate it out of 10, are you operationally -- operationally, it seemed like there were more issues than on the commercial side because you were winning business. But I would love to hear how you think the company is doing right now and how much more opportunity there is to improve.

Yes. Gregg, you always ask good questions. I appreciate that. I don't really want to comment too much on the past. I'd rather focus on the improvements. I mean, we got back to the blocking and tackling and the fundamentals of this business. My suspicion is, we probably lost a little focus on those things were going fairly well. And so, we got back to blocking and tackling, clearly defining processes, putting KPIs in place. That is something that we didn't have before. So whenever you're running an operation, you should always know if you're operating within control parameters or not because it's so important to be able to be nimble and to flex and intervene when needed. And I don't think we had that visibility before. So I'm not going to give us a rating of where we were before, but I think we are operating better than we ever have. On a scale of 1 to 10, I'd probably give us a score of 6 to 7. So there's still opportunity for us to do better. This is a tough business. It never stops coming at you. We've got vendors on one side. We've got customers on the other. And we've got incredible amounts of data flowing through this business. So I think once we start putting the individual KPIs on all of our team members, I expect that we'll see some efficiencies and performance improvements there. So I think 6 to 7 is fair for now.

And then, I missed part of Brett's comment. What did you say about SG&A? Did you say it would be down sequentially from Q3 or down year-over-year?

Yes, Gregg, I was saying down sequentially from Q3. We saw some pretty significant reductions in the first quarter from a year-over-year perspective as we right-size the business. A lot of the focus has been on early on right-sizing. And then, of course, we had the SG&A related to the divested mall business as well where we saw reductions, saw a little bit of improvement in Q3, but I'd say mostly flat. But we do continue to see improvement, some additional cost reductions in Q4 as well.

Okay. That's helpful. On the data subscription opportunity that you talked about for customers to access the portal, do you think that's something that can be $1 million or more over time? Or is this maybe not necessarily that big?

Gregg, I don't know. I mean, that's why I said it's -- we envision -- it's kind of a vision of ours. What we do know is, we have a lot of data. And with the onset of AI, I mean, who knows what our data is really worth, but we think there's value there. And one methodology could be to charge a subscription for access to that data, but we're not there yet, and I couldn't begin to size that opportunity. [ It assumes ] just a little peek into what we're thinking about as we move forward, but we're not there yet.

Okay. And then, on AR, thank you for all your hard work to get DSOs down into -- the math I was looking at was like 75 days, so really good improvement. How much of that was from -- maybe 2-part question. I think on the last call, you talked about getting the percentage of customers that are billed current to like 75%. That was sort of the first part. And then, the -- how do I think about that today? And then, the second part of the question was, was this like onetime because maybe there are opportunities to bill customers more frequently? Or do you see this kind of from here being smaller continuous improvements, maybe a day or 2 every quarter getting back into the mid-60s?

Yes. Let me start. Brett, you jump in too. I think our calculator is maybe a couple of days better than yours, Gregg. But I think that this is absolutely something that we believe will improve. So regarding the billing, 75%, I don't really remember precisely what that comment was. But where we are now is, we are billing the majority of our clients on time. However, there's always a billing tail. So we need to get the invoices in from our vendors in order to process it and then bill our customer. So we are working diligently to improve the timeline it takes to get some of those bills so we can bill even faster. So we now know that we are billing current for all the invoices that come in on time. which is an improvement from what we were doing before. Our focus now is to reduce the tail. So for those bills that aren't coming in, in time for us to bill, we're focused on getting those in so we can bill on time. So we continue to make great progress there. Our exception processing continues to stabilize. We're paying our haulers to term, which is really important because I would tell you in the past, we were probably paying a little ahead just to ensure that we weren't receiving service disruptions. And that's another significant point of improvement is our service disruptions are at the lowest point in history. And each one of those disruptions comes with associated costs. There are late fees and other fees that you can't bill the customer, and we don't really see much of those anymore. So, that also flows right through to the business.

And Brett, I don't know if you have anything to add, too.

Yes, I'll just -- one, agree on the team has been working really hard. So we're really proud of the performance. It's something we've been seeing the improvement on our side for a while. It needed to come through and show through the financials. So I'm really excited that we can finally show that and have everybody's hard work pay off. To your question about the opportunity ahead, this was obviously a pretty big jump. I wouldn't expect to make these types of leaps down, but we do expect to continue to make progress in Q4 and into next year. There's still some opportunities. This wasn't one of those quarters where all the things went right that we needed to go right to materialize. There was some meat left on the bone, still some opportunity there. So to Perry's point, we continue to try to bill faster. We still got some opportunities on the collection side to get our clients tightened up a little bit more there. And then, on the payment side, we're getting more efficient. So really pleased with the progress. This is a model that is built to generate cash, and we've been more consistent with that in the last 2 quarters and continue to have high expectations going forward.

If I can maybe sneak in 2 more. One was, it looks like your Monroe debt is a little more than 5 points more expensive than the PNC line. Would you -- if you could -- I don't know if you can, would you prepay some amount of that, $5 million or $10 million, to use more of your PNC line? Because you could save -- if you prepay $10 million, you save $0.5 million a year in interest. Or do you like having the flexibility to draw on the revolver if you need it?

Well, it's a balance. We've created a lot more flexibility. We've created a lot more room with the recent cash generation. So that's certainly positive. Regardless of what we want to do, though, we are restricted right now through Q1 is the earliest we could pay down. We have to hit some metrics that the banks have established to be able to make that switch that you talked about. But certainly, we'd like to pay down more expensive debt as much as possible.

Okay. And then, my last thing was, I think last year, when something that was unusual for this business is Quest never really lost any material customers, and some of that was RWS related and then some of it was acquisition related. But as I start to think about next year, how do you feel about the renewals that you know that are coming? And how are you positioning to make sure that you're in front of those customers ahead of time today?

Yes. I think we're in a really good position, Gregg. This is Perry. We're back to attrition at historically low levels. We're really -- we started by vastly improving the relationships we had with our vendors because I would argue that it needed improving. We're going to put a whole new refocus on relationship building and process improvement with our customers. Our customers are very happy with our program and with our execution. So we're developing a new plan to begin the renewal process for contracts earlier than we have in the past. Our intention is to have contracts renewed well before the contract expires, which maintains leverage for us. So yes, I think we've leveled off and our attrition will be back to historical low levels.

Your next question comes from [ Andrew Heffer ] with Pinnacle Capital.

Yes. I was wondering if you could talk a little bit more about the debt reduction -- you guys are generating some significant sequential cash flow -- and what your goals for 2026 are? And I think you just said that quarter 1.

This is Brett. Yes, just same follow-up -- kind of following up on what we discussed with Gregg, we continue to look to pay down debt. Preference would be to pay down the more expensive. We can't do that until after Q1 at the earliest because of some of the restrictions currently in place, but we're excited about the cash generation. That's one of our stated short-term goals -- medium-term goals is to continue to pay down debt aggressively. We want to be able to fund -- continue to fund certain strategic initiatives to help grow the business and create operating leverage with the business, and we'll continue to do that in conjunction with paying down debt aggressively.

Do you have any goals set for 2026 to where you want your operational leverage?

No, we haven't talked about that externally.

There are no further questions at this time. I'm pleased to turn the call back over to Perry Moss.

Great. Thank you, operator. We've made significant improvements in the past 2 quarters during a very challenging macroeconomic environment, but we still have work to do. As I said in my comments today, we're focusing on individual KPIs and performance goals to ensure our team members are operating at optimal levels. We plan to drive incremental efficiency in our business. Our mission is continuous improvement in everything we do.

So with that, thank you all for joining this afternoon. We appreciate your continued support and interest in Quest, and we look forward to updating you all next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.