Greetings, and thank you for being here. Welcome to the Quest Resource Holding Corp First Quarter 2020 Earnings Call. I will now hand the conference over to David Mossberg from Investor Relations. Please proceed.

Thank you, Grant, 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 Quest. Use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding Quest's future opportunities for growth; Quest's expectations for revenue, margins, and profitability in future periods, plus industry position and industry trends; Quest's prospects, outlook, and business strategies going forward; and Quest's beliefs regarding progress and timing. Such forward-looking statements are based on Quest's current expectations, estimates, projections, beliefs, and assumptions and involve certain significant risks and uncertainties. Actual events or Quest's results could differ materially from those discussed in forward-looking statements as a result of various factors, including changing market trends, reduced demand, the competitive nature of Quest's industries, and our belief that our asset-light business model and the essential nature of our services positions us well to weather the challenging COVID-19 environment, which are discussed in greater detail in Quest's filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended December 31, 2019. You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties. You can find those documents on Quest's website at qrhc.com. Such forward-looking statements are presented as of the date made, and we disclaim any duty to update such statements unless required to do so by law. In addition, in this call, we may include industry and market data and other statistical information, as well as Quest's observations and views about industry conditions and developments. The data and information are based on Quest's estimates, independent publications, government publications, and reports by market research firms and other sources. Although Quest believes these sources are reliable and that 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. In addition, Quest's observations about the view of our industry conditions and developments are its own and may not be supported or agreed with by other industry participants or observers. Certain non-GAAP financial measures will be discussed 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 that the presentation of these non-GAAP financial measures is useful for 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 is included in today's earnings release. With that said, I'll now turn the call over to Ray Hatch, President and Chief Executive Officer.

Thank you, Dave. Thanks to everyone for your interest in Quest. We hope you and your families are healthy and safe, and we appreciate that you've taken the time to join us to discuss our first quarter results. I'm grateful that most of our customers are deemed essential businesses, meaning they stay open to serve the public need; in turn, we are also considered an essential business due to the need to serve them. This is a very difficult time for everyone and we're not losing sight of the importance of our work. We remain committed to our mission of providing critical, sustainable services to our customers. The negative effects of COVID-19 had a relatively small impact on first quarter results, as the drop in customer volume levels in certain end markets was only reflected during the last two weeks of the period. During the quarter, revenue decreased 4.9%, impacted primarily by low levels of production in the commodity waste stream at one of our largest industrial customers, unrelated to COVID-19. This had a negligible impact on gross profit dollars, which remained relatively unchanged year-over-year. While we expect a larger impact on our financial results in the second quarter, for the most part, our customers were able to stay open, but at reduced volumes. That said, we took early action to protect our employees by moving operations to a virtual environment, utilizing the flexibility in our variable cost structure to quickly reduce costs and protect our balance sheet and liquidity. In addition, reviewing our results today, we'll give more details on the actions we've taken to maintain customer service levels and protect the health and safety of our employees. We'll also review the actions taken to mitigate the effects of COVID-19 on our business and the trends that we see in our major end markets. Before I get into more detail, I'm going to turn the call over to Laurie to review the financials.

Thank you, Ray, and good afternoon to everyone on the call. First quarter revenue was $25.3 million, a 4.9% decrease compared with the $26.6 million in the first quarter last year. The year-over-year decrease included a decline in revenue from a commodity waste stream at one of our largest industrial customers. This decline was not related to COVID-19 and had negligible impact on gross profit. This impact was partially offset by increased services from both our continuing and new customer base, and as Ray mentioned, we also began to see a sharp drop-off in volumes in certain end markets during the last two weeks of the quarter. Despite the decrease in revenue, we maintained gross profit at $4.5 million, relatively unchanged when compared with the first quarter last year. Gross margin for the first quarter was 17.9%, a 90-basis-point improvement compared with the first quarter last year. SG&A expenses were $4.4 million during the first quarter; this was a 4.6% increase compared with the same period last year. The year-over-year increase reflects investment in corporate development efforts and an increase in other G&A costs including increased stock-based board compensation and some COVID-19-related severance costs. These increases were partially offset by lower professional fees. Late in the first quarter and into the second quarter, we took action to lower our SG&A expenses and preserve cash, including discretionary spending cuts and reducing almost 20% of our workforce through attrition and furloughs. Thankfully, we were able to secure a paycheck protection loan under the CARES Act, which has allowed us to bring back most of the furloughed employees and maintain the continuity of our workforce in support of the essential services provided to our customers. Net loss per basic and diluted share was $0.02 for the first quarter of 2020, compared with the loss per share of $0.01 for the first quarter of 2019. Our adjusted EBITDA for the first quarter was $534,000, compared to $796,000 during the same period last year. Looking at the balance sheet, we have implemented cash conservation and expense management initiatives to maintain a strong balance sheet and provide ample liquidity. Our cash balance at the end of the quarter was $3.3 million, relatively unchanged from the beginning of the year and an increase of $1.2 million relative to the end of the first quarter last year. We had $4.7 million drawn on our $20-million credit facility, which was relatively unchanged from the beginning of the year. We have a total borrowing capacity of $11.2 million as of March 31, 2020. We maintain strong working capital discipline and are carefully monitoring the status of our accounts receivable. DSOs were within the normal range for the last several quarters and, through our efforts, we have been able to keep receivables balances in order. As I mentioned earlier, we qualified and applied for the Paycheck Protection Program under the CARES Act, and on May 5 received $1.4 million in loan proceeds. This loan has allowed us to bring back most of those employees furloughed and will allow us to maintain continuity of our workforce during this program. So, in summary, with the actions we have taken to maintain liquidity, we are well positioned to provide uninterrupted service to our customers. And at this time, I'll turn the call back to Ray.

Thank you, Laurie. There are many important updates I'd like to cover today. Before I get into the actions we've taken, I want to give a little background in terms of how we are being affected by COVID-19. It's important to understand that we service commercial, not residential, customers. Unlike residential service, which typically charges a flat monthly fee, much of our revenue is ultimately based on the volume of waste generated. Lower economic activity and lower volumes directly translate into lower revenue for us. On the positive side, we have focused on maintaining our customer relationships, working with them as partners. Almost all of our customers are deemed essential businesses and remain at least partially, if not fully, open. While certain customers may have lower volumes of waste, they still have the same waste stream and the need for our services. We believe this flexibility and commitment to partnership is consistent with our value proposition and should continue to serve us well into the future. We expect the impact of the lower economic activity will be much greater during the second quarter, when we will see the full quarter's effect of the downturn. Since the end of the first quarter, the economic activity of our customers in the grocery retail industry has remained relatively stable. However, economic activity in many of the other end markets that we serve has dropped significantly. While in the last few weeks we've heard some evidence of stabilization and modest recoveries from these lower levels, it's still too early to tell how long these conditions will last and how quickly these end markets will recover. Next, I'll review in more detail what we've seen in terms of economic activity in our major end markets. I will note that we have a several-week lag in how we see the revenue that flows through our business. To gain more timely insight into the current business trends, we are staying in close contact with our customers and closely monitoring market conditions. In the grocery retail end market, most of our customers remained open, with the exception of a few traditional retail accounts. Grocery customers have stayed strong throughout this entire period and in some cases experienced modest growth. While a few of our traditional retail customers have been temporarily closed, other specialty retail customers that are classified as essential have remained open, and in certain cases have also seen gains in volumes. We saw a significant decrease in the automotive repair and maintenance market beginning in mid-March, as there has been a significant decrease in consumer-focused automotive maintenance during the pandemic. Industry data would suggest that there was a 40% to 50% decrease in miles driven at the end of March and into early April compared to the end of February. One publicly traded automotive service provider reported that their sales trends decreased by 40% in the first half of April, but they have seen an uptick from these levels. Anecdotally, we've heard similar trends from other consumer-focused customers in this end market. While we're discussing the automotive sector, it's also important to make a point about the decrease in oil price and its effect on our business. A large part of what we do in the automotive maintenance space is picking up and recycling used motor oil. I would note that our profit contribution is based on the pickup and disposal service and is not tied to the price of the commodity. As such, the price of oil does not create a significant disruption in our margin profile. Consumer demand has had less of an effect on the customers than the industrial end market; however, certain industrial customers have curtailed production and temporarily closed some of their plants due to breakouts of the virus. Most of our industrial customers are considered essential, and we expect that volumes will come back with the overall economy. The restaurant vertical is a smaller and newer end market for us, but it's also one of our fastest-growing areas prior to the pandemic. Obviously, restaurants have been significantly impacted overall, but the extent has varied depending on the type. Most of our customers are casual dining and quick-service restaurants and have seen significant declines in business during the month of April. We expect that volume levels will pick back up as restrictions have begun to lift in most states. Moving on to a discussion of the actions we are taking. First and foremost, we've taken several actions to protect the health and safety of our employees. We were very fortunate that we are considered an essential business along with most of our customers and remain operational. More than 90% of our staff are working remotely. There's a skeleton crew that continues to work from the office. We're following CDC guidelines to protect the health and safety of those workers, and we're grateful, but not surprised, by all our employees' willingness to do what it takes to deliver uninterrupted service for our clients. This change in our operation has been seamless and was facilitated by investments we made last year to move our technology infrastructure to the cloud. Our call center has been remote for about two months now, and we've seen no performance issues. Next, I'll talk about the actions we've taken to mitigate the effects of COVID-19 on our business. We reacted quickly when we saw market conditions changing. Laurie discussed the actions that we've taken to address the cost side. We play a vital role in supporting our customers during this crisis, and it's important that we preserve the continuity of our workforce in the near term and ensure the long-term viability of our business. Reducing costs and receiving the proceeds from the Paycheck Protection Program is helping us to do just that. In addition to cost, we've positioned ourselves to grow. I want to cover our new customer pipeline first. The new business pipeline remains intact. We have a number of sustainability-focused pilot programs that have commenced with new and existing customers that look very promising. However, in this current environment, prospects have slowed their evaluations and many have delayed decisions until they are less bandwidth-constrained. Given that we've put ourselves on solid footing, we are continuing to pursue opportunities that have arisen in the current environment. We've developed marketing programs focused on industries and customers, while our flexibility of service levels and financial strength all position us to differentiate ourselves. And without getting into specifics, we are developing programs that will help customers reopen their businesses more quickly as well as services designed to help them comply with new regulations to protect the health and safety of workers and/or patrons. Regarding our M&A efforts, as we discussed in our last call, this is a new strategic initiative that we introduced this year. During the first quarter, we hired a corporate development resource in this area and are committed to enhancing shareholder value through disciplined acquisitions where they make sense. In summary, we are unable to give specific guidance; clearly, we are expecting a significant decrease in revenue and profitability during the second quarter. We are seeing early indications that during the second quarter, our customers in certain end markets may begin to bottom out and that economic activity levels will begin to recover as states' economies reopen. However, it's impossible to definitively predict the timing or the extent of that recovery. We've taken several actions to mitigate the extent of the downturn in economic activity. The first actions are those that we've completed during the last several years. We set our priorities and launched a disciplined process for driving shareholder value with a focus on diversifying our customer mix and pursuing differentiated business. Our approach has allowed us to enter this period of uncertainty in a position of relative strength and financial stability. As we described, we have also taken actions to cut costs, introduced new programs and services, and are actively working to keep our pipeline of new business intact. With these actions, combined with the flexibility of our asset-light business model, a strong balance sheet, the strength of our customer relationships, and the essential nature of our services, we believe we are well positioned to weather this difficult period. Longer-term, we believe the trend toward sustainability will continue, and we believe Quest is well positioned to benefit and in some cases take a leadership role in effecting the growth trend. While our customers and prospects may be temporarily distracted by the COVID-19 virus, we believe that companies will continue to deploy sustainability programs in order to divert more waste from the landfill and reduce their environmental footprint. I look forward to updating you on our progress. We'd now like the operator to provide instructions on how listeners can queue up for questions.

The first question is from Amit Dayal with H.C. Wainwright.

Just to begin with, you talked about the drop in volumes with all of your customers. Could you share a range relative to the normal levels by which these volumes have dropped?

Yes, Amit. Given the variety of our customer base, it's challenging to provide a specific range. We mentioned that the consumer automotive sector was likely the most affected, and while the reductions are significant, we do have some customers who have seen slight growth during this period. Since we serve so many different segments, it’s difficult to pinpoint a range. But that gives you an idea of the spectrum from best to worst.

All right, I understand. Thank you for that. Have you lost any customers? Have you primarily been able to retain most of the relationships?

Yes, that's a great question, Amit. This is an interesting time, and I’m pleased to say that we haven’t lost any customers. We’re in constant contact, and personally, I don’t believe our partnership has ever been stronger during this challenging time with our customers. While there are definitely volume and revenue losses, they don’t stem from client losses; rather, they are typically just related to the impact of the virus itself.

Understood. Do you see early recovery happening in a specific end market for you guys, or is this just going to open up gradually across all segments for you?

Well, I think we discussed some segments. We've got automotive, industrial, grocery retail, and food service. What did I miss?

No, those are the primary ones that we discussed.

Those are the significant areas. So when considering these aspects, what I'm conveying is that as economies start to reopen, we believe that increased miles driven will positively affect the consumer automotive sector. The amount of driving is influenced by the availability of places to go. Therefore, I expect a direct relationship there. Restaurants and food services have encountered numerous challenges, but I believe they will adapt as states open up. However, their recovery might take longer compared to other sectors, although some are performing very well.

Some of them are quick-service, just faster.

Yes, the businesses that focus heavily on take-out and drive-through have performed quite well. However, when you look at the food service segment, which is very diverse, full-service restaurants face a much greater impact and will likely experience a longer recovery. Overall, I believe there will be a connection between the recovery of the economy and that of our customers, as they represent a wide range of businesses.

And the next question comes from the line of Gerry Sweeney with Roth Cap.

Could you provide an overview of the market sizes in percentage terms? For example, restaurants at 10% and automotive at 30%. This information would help us understand the impact on revenue.

Well, go ahead, Laurie.

We don't typically report those types of percentages, but we mentioned that all of those segments are significant in our business. Each of the five we discussed would certainly account for more than 10%, wouldn't you agree, Ray?

Oh, yes.

To the extent that I could add to what Ray was saying, several of our clients in the grocery sector are performing very well. They are quite busy, and our specialty retail has also remained active with all locations open. The good news is that even our restaurant clients and automotive locations are staying open. Their ability to rebound regionally as the economy improves allows them to see immediate growth because they have remained operational. I believe that some of the more significant impacts we observe stem from the reduced miles driven by consumers, which is a major factor that has been highlighted in some public information.

Yes, Gerry, those segments, which we have mentioned before, basically include industrial, retail grocers, and automotive. All three are essential to our business and represent significant portions of it. Food service is nearing that level, or was. We expect it to return to that status. When you examine these segments, they provide a good insight into our business. That's about the best information I can share with you at this moment.

All right, that's fair. That's good, I can take that and work with it. Shifting gears a little bit to the balance sheet, you still have $11.2 million of availability. I don't have the exact figure, but there are several million on the balance sheet, and you also received an additional $1.2 million recently.

$1.4 million.

$1.4 million, my apologies. And still in context with your banks, that liquidity should stay in place, and you don't have any concerns. Have you thought about even pulling down your lines a little bit just to bring it in-house for safety's sake?

Well, Gerry, one of the things we did is increase our average cash balance, and our entire line is readily available to us, which we draw against as needed. The advantage is that it fluctuates with our revenue, but the availability is there for us. I can explain how that line of credit works if you're interested. We've also increased our working capital from about $3.8 million in Q1 to $5.6 million at the end of Q1, so we've taken steps to enhance our working capital, and the actual availability on our borrowing base has also slightly increased.

Yes, I understand. Looking ahead, if the situation remains more challenging than we anticipate, what other strategies do you have to manage costs? You mentioned that you furloughed up to 20% of your employees.

One of the important points to remember, Gerry, is that all of our cost of sales is variable. This aligns with our asset-light model, where as the business reduces, our cost of sales decreases correspondingly. This is because we are not significantly invested in assets or large labor forces in the field. As a result, we can adjust nearly dollar-for-dollar as business decreases, and we also have flexibility in our SG&A costs at the facility and corporate office, allowing us to reduce some labor as previously noted. We can further adjust this depending on the business outlook throughout the year. Additionally, we have postponed certain capital expenditures, primarily deferring them until next year and limiting spending to what is absolutely necessary.

Gerry, Laurie makes a good point; many companies have fixed arrangements with subcontractors that don't change costs. Our costs are directly tied to the business, allowing us to maintain our margins and control the cost of goods, which is our largest expense. Regarding SG&A costs, as Laurie mentioned, our travel expenses have significantly decreased since we're a national company operating from one city, and travel is now nearly non-existent. We've carefully examined every expense line, and I'm proud of our team's efforts to make these adjustments. We feel confident in our position due to our liquidity and the proactive steps we took before this crisis, ensuring we can weather the storm alongside our customers and come back strong.

Yes. And I did get that. Just had to ask, so.

Sure.

But actually, speaking of revenue, I should have asked this at the beginning. Your costs are nearly all variable with your service providers, but do you have any minimums in your contracts that would ensure you receive a minimum payment even if there is a slowdown?

With the subcontractors, you mean?

I understand that the subcontractors might seem variable. However, do you have any fixed costs or minimum payments from clients that you would still receive even if there were no pickups?

Well, Gerry, it's important to make a distinction. There are two main sources of our revenue: scheduled services and volumes. The vast majority of our business is related to volumes, and this can vary. Unlike a competitor who charges stop fees, that's not part of our program. Overall, we tend to fluctuate with the performance of our clients. While we do have scheduled services that offer more stability, they make up a smaller portion of our business.

And the next question comes from the line of Sarkis Sherbetchyan with B. Riley.

Just want to kind of circle back on the subcontractors. Any kind of insight you can provide us on how their network is doing and serving you in this time? Any kind of pain points, or is it kind of business as usual in that regard?

Yes, that's an excellent question. Laurie, Dave Sweitzer, our COO, and I communicate daily to evaluate various aspects of our business, with our subcontractor relationships being a top priority. We maintain constant contact with them and view our relationship as a partnership. We strive to provide them with the tonnage and efficiency they need, and in fact, we just discussed this yesterday afternoon. We've not observed any decline in this area. They have managed through challenges effectively. Honestly, I anticipated more issues than we've encountered, so I'm pleased to report that we continue to meet our clients' needs through our subcontractor network without any negative impact.

And we do have steps, also.

Precisely. Yes. One of the things that Laurie just mentioned is that in most cases, and probably the vast majority, the different materials we provide come with multiple levels of service. This means we have alternatives within those markets, at least a secondary if not a tertiary option. This is appealing to our clients because there is no single point of failure. We can respond to changes and potential negative impacts within our subcontractor base, but so far that has not been necessary, and we hope it remains that way.

Thanks for that. That's super helpful. And if I can kind of maybe think about the actions you've taken, at least on the cost side for Quest, I understand the COGs line is variable with the volume and the tonnage, but if I specifically focused on kind of the SG&A level, you've taken action; I think just looking at the March quarter, you might need, call it, $4 million to $4.5 million of gross profit to maybe break even or so. Can you maybe help us understand what your breakeven rate is today?

Well, we haven't completely estimated that. But our breakeven rate is something I would prefer to follow up on later if that's alright with you.

Yes, sorry, yes. If you don't mind, can we get back with you on that?

Yes, that's fair. And I guess one more from me is, in this kind of environment, would you expect to at least generate a little bit of cash, or would you be a consumer of cash?

It's safe to say we should be generating cash. We should not be a consumer of cash.

Yes, correct. Based on our outlook, it looks like we will continue to generate cash through our operations.

Yes, we approached our adjustments and costs with that in mind to make sure that that was the case, and we feel pretty confident the adjustments that we've made will yield exactly that.

And there are no further questions at this time. I will now turn the presentation back to the speakers.

All right, thanks, everyone, for joining us on the call. If you have any follow-up or questions, feel free to contact us. My number is on the bottom of the release. Thanks. Bye.

Bye.

And that does conclude today's conference. We thank you for your participation and ask that you please disconnect your line.