Waste and recycling services provider Quest Resource (NASDAQ: QRHC) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 5.8% year on year to $68.43 million. Its non-GAAP loss of $0.14 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Quest Resource’s first quarter results reflected the impact of both strategic and operational changes, as management addressed ongoing client attrition and softness in industrial sector volumes. CEO Perry Moss highlighted the completion of the non-core RWS business sale, which generated $5 million in cash and contributed to a leaner cost structure. The company also implemented efficiency initiatives and reduced selling, general, and administrative (SG&A) expenses by $3 million on an annualized basis. While onboarding of new clients continued, these gains were offset by lower volumes at select large clients and the lingering effects of previous client losses, as explained by CFO Brett Johnston. Management maintained a cautious tone, acknowledging that the company has “just not converted our business into profit,” but emphasized early progress from operational improvements.

Looking ahead, Quest Resource’s outlook is anchored in ongoing operational initiatives, further cost reductions, and the optimization of new customer contracts. Management expects sequential improvement in gross profit beginning in the second quarter, driven by margin improvement from maturing client relationships and the abatement of temporary onboarding costs. CEO Perry Moss stated, “I expect to see results beginning Q2, but largely in Q3 and Q4 they'll come to fruition,” underscoring that a cultural shift toward continuous improvement is underway. The company remains focused on expanding its share of wallet with existing customers and believes that efficiency gains and automation initiatives will help improve EBITDA, cash generation, and debt reduction over the remainder of the year. However, management acknowledged ongoing market uncertainty, particularly in the industrial segment, which could continue to affect volumes in the near term.

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to client attrition, lower volumes in key segments, and the costs of integrating new clients, while highlighting actions to streamline operations and improve profitability.

• Sale of non-core RWS business: The divestiture of the underperforming RWS segment generated $5 million in cash and eliminated a source of inconsistent financial results. Management used the proceeds to pay down debt and expects this move to simplify the company’s operations.

• SG&A reductions and efficiency drive: Quest Resource implemented annualized SG&A cost savings of $3 million, which should be fully reflected in future quarters. These reductions stemmed from both the RWS divestiture and targeted internal initiatives, with further savings expected as process improvements roll out.

• Client attrition and volume pressures: The company continued to experience lower volumes, especially among large industrial clients, and cited approximately $7 million in revenue impact from client attrition—half related to the divested business. Management said attrition outside of the asset sale was primarily caused by clients being acquired by companies with different service programs.

• Onboarding new clients and margin ramp: While new clients added in 2024 contributed incremental revenue, management noted it typically takes several quarters to optimize service levels and improve gross margin with these customers. Temporary onboarding and implementation costs weighed on gross profit but are expected to subside as client relationships mature.

• Operational excellence and leadership changes: Quest Resource promoted Perry Moss to CEO and added Nick Ober as Senior Vice President of Operations, emphasizing a new culture focused on performance, accountability, and data-driven improvement. The company also welcomed Bob Lipstein to the Board, bringing additional financial and audit expertise.

Drivers of Future Performance

Quest Resource’s management expects margin and cash flow improvements to be driven by operational changes, client optimization, and cost discipline, even as market uncertainty persists.

• Operational and cultural transformation: Management is executing a company-wide operational excellence initiative, benchmarking processes, and rolling out automation tools such as a vendor management platform. These steps are designed to increase efficiency, lower costs, improve cash flow, and expand margins, with progress expected to accelerate in the second half of the year.

• Client optimization and retention focus: The company is prioritizing the optimization of services for recently onboarded clients, with the goal of ramping up gross margins as these relationships mature. Management has also instituted a new customer retention plan, including direct engagement by the CEO, to reduce attrition and expand share of wallet among existing accounts.

• Market and volume headwinds: While management expects sequential improvement in financial performance, ongoing softness in the industrial sector and cautious customer behavior due to economic uncertainty could limit near-term volume growth. The company views its asset-light, cost-oriented model as attractive in this environment but acknowledges some sales cycles are lengthening.

Catalysts in Upcoming Quarters

In the quarters ahead, we will closely watch (1) the pace at which process and automation initiatives translate into margin expansion and cash flow improvement, (2) the company’s ability to optimize and retain recently onboarded clients while reducing attrition, and (3) signs of stabilization or recovery in industrial sector volumes. Progress on accounts receivable collection and further SG&A reductions will also be key indicators of execution.

Quest Resource currently trades at a forward P/E ratio of 6.4×. In the wake of earnings, is it a buy or sell? Find out in our full research report (it’s free).

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