Quest Resource (QRHC) Q4 2024 earnings summary

Executive summary

• Achieved record new client wins in 2024, including eight new customers each expected to generate at least seven figures in annual revenue, and secured multiple expansion agreements with major clients, driving pipeline growth and positive referrals.

• Faced operational challenges including onboarding costs, vendor management system transition, client attrition, and industrial sector weakness, which impacted margins and profits.

• Leadership transition: Perry Moss appointed CEO, Nick Ober as SVP of Operations, and Ray Hatch retired as CEO but remains on the Board.

• Initiated cost reduction actions, including a 15% workforce reduction and exit from non-core mall business, targeting $3 million in annual SG&A savings.

• Completed debt refinancing, lowering annual interest expense by ~$1 million and reducing blended interest rate by 150 basis points.

Financial highlights

• Q4 2024 revenue was $70 million, up 0.9% year-over-year but down 4% sequentially; gross profit was $10.7 million, down 6.7% year-over-year and 8.3% sequentially.

• Q4 gross margin declined to 15.3% from 16.6% in Q4 2023; GAAP net loss per diluted share was $(0.46) vs. $(0.11) last year.

• Q4 adjusted EBITDA was $1.7 million vs. $3.5 million prior year; adjusted net loss per share was $(0.09) vs. adjusted net income of $0.03.

• SG&A for Q4 was $10.1 million, up $700,000 year-over-year, with $500,000 in bad debt reserves and $1 million lower bonus accruals.

• Recognized a $5.5 million non-cash impairment loss related to the sale of mall-related client contracts.

Outlook and guidance

• Expect $15 million net incremental revenue from 2024 new client wins, not including future wins or commodity impacts.

• Management expects operational normalization in coming quarters, driven by efficiency initiatives, cost reductions, and a robust pipeline of new business.

• Temporary costs from onboarding and system transition to subside by early 2025; improvements expected in second half of 2025.

• Projecting both top and bottom-line growth for 2025, with sequential gross profit improvements starting Q2.

• SG&A expected to decrease by ~$3 million annually and to $9.5 million per quarter in the second half of 2025 after cost savings are realized.