Good afternoon, ladies and gentlemen, and welcome to the Quest Resource Holding Corporation 2nd Quarter 2025 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, August 11th, 2025. I would now like to turn the conference over to Joel Nines. 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 Quest. 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 Quest's current expectations, estimates, projections, beliefs, and assumptions, and involve significant risk and uncertainties. Actual events or Quest 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 Quest filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult our sec filings for additional risk and uncertainties but forward looking statements are presented as of the date made and we disclaim any duty to update such statements unless required by law to do so in addition in this call we may include industry and market data and other statistical information as well as quest observations and views about industry conditions and developments the data and information are based on quest 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 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 all that said I'll now turn the call over to Dan Friedberg, Chairman of the Board.

Good afternoon. Thank you for joining us on today's call. Overall, during the second quarter, our efforts to fundamentally improve our operations and produce more consistent financial results are on track, and we can clearly see a path for a more efficient, consistent, and profitable business. Clearly, last year's results were extremely disappointing. Some of the issues were market-based, but many were self-inflicted operational issues. We have made significant changes to our organization, culture, operating approach, and are addressing inefficiencies and variability across our business. We are making good progress and are seeing positive results, but it will take some time to see the full impact of all our initiatives. Some initiatives are short-term focused, others are longer term oriented. They involve all aspects of the business across the entire workflow and all business functions. We are pleased to see the initial benefits from our efforts to improve operations and deliver superior financial returns. Perry and Brett will go into more detail on the call, But, for example, our focus on improving cash generation is showing results. Our initiatives have helped us to generate $3.9 million of operating cash flow in the second quarter, and we have reduced that by $6.6 million year-to-date. This remains a key area of focus, and we expect to see further improvements during the year. We are changing how we do business, changing our culture, improving operations, and laying the groundwork for sustainable, profitable growth. We are on our way, and although there is a lot to do, we see the initial benefits and can see a clear path to generating a growing, more consistent, and increasingly profitable business. With that, I'll turn the call over to Brett and Perry.

Thanks, Dan, and good afternoon, everyone. Revenue for the second quarter was $59.5 million, which was a decrease 19% from a year ago and down 13% sequentially from the first quarter. Of the $9 million sequential decrease in revenue, approximately one-third was related to the mall-related business that was sold at the end of the first quarter. The bulk of the remaining decrease was related to decreased revenue from clients in the industrial end market. It is worth repeating that our relationships with these clients are strong, and there are long-term opportunities to grow with them as end market conditions improve. This weakness is not isolated to Quest, but we expect it to continue from clients in this area. From first to second quarter, we did see modest sequential growth in revenue from new clients added during the past 18 months. We expect new clients to continue to provide incremental contribution in both revenue and gross profit dollars as we complete the rollout and optimize and expand services, which typically result in higher margins over time. During the second quarter, gross profit dollars were $11 million, up slightly from the first Despite the sequential decrease in revenue from the first to second quarters, we were able to demonstrate a slight sequential increase in gross profit dollars as optimization outweighed margin pressures and market headwinds. Partially reflected in our second quarter results, we are seeing gross margin pressure as we renew client engagements. Due to economic uncertainty, particularly in the industrial end markets, clients are looking to further reduce costs. Importantly, we feel confident in our proven ability to continuously drive cost savings by optimizing the waste streams for our clients. As we share in those cost savings and drive further internal operational efficiencies, we expect to return the margin profile on renewed business over time. Overall, as we look forward to third and fourth quarters, we expect sequential comparisons for gross profit dollars to be flat to slightly down in the third quarter and resume sequential growth in the fourth. We are being cautious about our outlook given the uncertainty related to client volumes in the industrial end market during the second half of the year. We also expect further impact from margin pressures in the third quarter. Therefore, we expect sequential comparisons from second to third quarter to be challenged, as it is likely to take more than one quarter for margin pressures from renewals to be offset by shared cost savings and the ramp of gross profit dollars from new clients. Despite the near-term headwinds, we remain confident in resuming sequential growth in the fourth quarter. Our confidence is based on our visibility into initiatives 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. As a reminder, we still anticipate the seasonal slowdown in volumes that typically occurs during the fourth quarter, which will somewhat offset these gains. Moving on to SG&A, which was 9.3 million during the second quarter, a decrease of 2.1 million sequentially from the first quarter. The sequential decrease was ahead of our expectations and was primarily related to the reduction in workforce, increased efficiencies, and the aggressive takeout of costs across the organization. For the third and fourth quarters, we expect SG&A costs to be mostly flat compared to the second quarter. Moving on to a review of the cash flows and balance sheet. At the end of the second quarter, we had $450,000 in cash and approximately $19 million of available borrowing capacity on our $45 million operating borrowing line. For the second quarter, we generated approximately $3.9 million in cash from operations, which was related to a decrease in working capital. Accelerating cash cycle times has been a clear priority for us this year. and we made incremental progress in the second quarter. While we still expect significant improvement, we did see a slight decrease in DSOs from the first to second quarter. Our efforts to improve processes and systems are allowing us to bill more quickly and we continue to tighten up on collection efforts with our clients, which will drive further improvements in DSOs in the quarters to come. On the payment side, we have addressed service issues experience last year and improved our vendor communications, which is allowing us to bring payable days back in line with contracted terms, helping us to accelerate our cash cycle. With these improvements, we expect to generate significant operating cash flows during the remainder of the year. Our cash initiatives contributed to the $6.6 million paydown in debt year-to-date. At At the end of the quarter, we had $69.7 million in net notes payable versus $76.3 million at the beginning of the year. We expect to continue to aggressively reduce debt in the second half of the year as these cash initiatives continue to take hold. At this time, I'll turn the call over to Perry. Thank you, Brett.

We're encouraged by the sequential improvement in our financial results from the hard work we have done to establish an organization deeply rooted in operational excellence equally exciting is the cultural shift we are experiencing which is delivering short-term benefits while positioning us to create long-term value for our clients employees and shareholders as always our culture remains firmly client-centric focused on providing innovative solutions and exceptional value the At the same time, we are placing a stronger emphasis on performance and accountability. While we're still in the early stages of this improvement process, I'm very encouraged by the progress we have made in a short period of time. We have established key internal metrics and improved processes that we are using to benchmark, measure, and target improvement opportunities across the entire organization. Defining excellence and setting high standards is a key to coaching, developing, and motivating employees, and our team has embraced these changes with enthusiasm. Internally, we've seen better communication with vendors and with clients. Employees are holding each other accountable and contributing ideas to make continuous improvement. Through our Operational Excellence Initiative, we have developed workflows and process improvements across our value chain. These improvements have enhanced our AP platform, significantly reducing costly exceptions and disruptions to our vendors and clients. As Brett said earlier, improvements in this area are allowing us to bill our clients at a faster pace and helping to improve vendor invoice processing, both of which are reducing cash cycle times and improving cash flow. And our vendors are asking for more of our business, providing us with solid negotiating leverage. We're on our way to making significant operational improvements that would drive improved profitability, enhanced client experience, and a winning company culture. But these take time as we fundamentally improve our operating practices. In parallel, we have also been hard at work to drive growth and revenue and gross profit dollars from both existing and new clients. First, we are very focused on expanding our share of wallet with existing clients. For example, during the second quarter, we were awarded an expansion with an existing client that is a large retailer. We had been servicing this client in a limited region, and by demonstrating our value proposition, they rewarded us by doubling the number of locations we are now servicing. I'll point out that this was a competitive win, and we were chosen based on the quality of our service execution and not based on price. There are many opportunities that include geographic and service line expansion within our installed base, and we expect wallet share gains to continue to be a consistent area of growth for our company. We have refined our share of wallet process by partnering our sales organization with our client solutions team to utilize our key relationships with our best sales skills to maximize this growth initiative. The second source of organic growth will come from adding new clients. We made significant changes to our sales organization that have resulted in a robust pipeline of new business. Our sales force is executing a structured and disciplined plan and we have added several new clients during the first half of the year. With that said, the pace of adding new clients has been slower than last year and slower than what we had anticipated. Deals are moving through the pipeline and have not fallen out, but due to economic uncertainty, clients are just taking longer to make the decision to move forward. For example, at the end of the second quarter, we signed an agreement with a new client in the restaurant industry that had been at the goal line for nearly a year. I will point out that this was also a competitive win. The client chose us over a large integrated waste provider based on our value proposition and our client advocacy approach. We have more deals in the pipeline that are at the goal line. While the timing of these deals is uncertain, we are the only new provider still being considered. I can't predict when they will close, but I feel confident, given our value proposition and our sales organization, we will win more than our fair share of the new business. In addition, we expect gross profit dollar growth to come from optimizing the services with existing clients. As we have described in the past, over time, we are constantly looking for ways to reduce costs and optimize the service levels of our clients. We share in these improvements with our clients, and over time, we consistently improve the margin profile of the business. This is particularly the case for the large number of new clients that we have been onboarding over the past several quarters. This optimization is well underway, and we expect to see continued improvement in the margin profile of new clients. In addition, given our confidence in our ability to optimize services, in some cases we are taking lower upfront contracted margin in exchange for a greater share of the cost savings. This allows us to maintain or improve our margin profile over time and further strengthens the client relationship.

Regarding our outlook, the actions we have taken are beginning to show results.

We saw the effects of the reduction in force and efficiency initiatives on the SG&A line during the second quarter. In addition, the cost we incurred on a temporary basis related to onboarding new clients and the transition to a new AP system are abating. These and the other initiatives underway are continuing to take hold, and we expect steady improvement as we move through the year. Historically, we have performed well during economic downturns, and we are monitoring our clients and markets closely. Our industrial clients have shown weakness, and given the uncertainty in the economy generally, volumes with them continue to be impacted. With that said, we have great relationships with these clients and believe there are opportunities to do more with them in the longer term. As is often the case during times of uncertainty, we are feeling some margin pressure as we are renewing business across a range of clients. We believe these effects are temporary, and we expect to improve margin profiles by optimizing service levels and delivering continuous operational improvements. For the near term, there is a degree of uncertainty amongst new client prospects, which will likely continue to affect the pace of adding new business. With that said, we are adding new clients and growing our share of wallet with existing clients, both of which should provide sequential contribution during the back half of the year. Before we open it up for questions, I want to reiterate what we said last quarter. The board, management, and our entire team are committed to aggressively drive change and enhance shareholder value. The market for our asset-like model remains robust. We are gaining share. Clients are providing us with strong references. We have opportunities to increase our share of wallet, and our cost-oriented value proposition is resonating loudly. In addition, we are committed to maintaining a solid balance sheet, and our priority for capital allocation remains the repayment of debt. And we are and will continue to take decisive action to improve our ability to execute generating consistent, sustainable, and profitable growth going forward.

We would now like the operator to provide instructions on how listeners can queue up for questions. Operator?

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Jerry Sweeney. Please go ahead.

Good afternoon. Thanks for taking my call.

So obviously, I want to start with revenue. I think a little bit higher decline than anticipated. And I think you called out the industrial space in particular, but also said, you know, you expect continued weakness on that front. Is this slowing down? Is this weakness going to be slowing down? Has it abated and going to be staying down? And, you know, the opposite side of that, any hopes for green shoots in the next quarter or two? It does feel like the economy in general was a little rough in the first half, but maybe catching its stride now.

Yeah. Hi, Jerry.

This is Perry. You know, I think our industrials, you know, will continue to follow the general economy. So, you know, it's tough to have any predictions on what's to come. I think, you know, the general uncertainty caused, you know, by the current economic conditions, tariffs, et cetera, have caused some challenges in our industrial sector. So, you know, I think that follows along with the general economy. If we see some improvement, I think our industrials will follow suit. But I'll tell you that our other sectors are doing rather well. So, you know, our food space sector, our grocery sector, they seem to be doing very well. So, you know, one of the strategies that we've had over the last year is to build out a much more well-rounded portfolio to kind of offset, you know, some of those implications.

How much, and I don't know if you've given this in the past, and I apologize, and you may not want to give it here, which is fine as well, But how much of your revenue is oriented towards the industry?

Yeah, we've never given that, and we continue not to do that.

We can leave it there. I'll make it easy for you. Thank you. I mean, if you're not going to do it, it's all good. Margin pressure, on that front, it sounds like you're getting pressure from renewals. So on that front, is that across all industries or is that more oriented towards industrial and separately? Is this a larger sort of renewal year than maybe some next year or a year ago prior? Just curious of the size of it.

Yeah. No, very good question. Let me answer your last question first. This is pretty normal. You know, our typical contracts run for three to five years, so there's nothing unusual about the renewal cycle this year. I'll tell you that it does not only affect industrial, but certainly our industrials are probably the most cost-sensitive at the moment. But I'll tell you that whenever we renew for a slightly lower margin, we're always asking for something back, right? So, we'll either get a larger share of the savings that we deliver for the customer, we may get better payment terms, or we may get a larger share of their business. So, there's a give-and-take. For example, we did a renewal with one of our retail customers, and we gave a a small consideration for the renewal, but we picked up all of their distribution centers, which were not under contracts prior to that renewal. So, yeah, I think this is temporary. I think our industrials are the most sensitive, but we always try to get something back to regain the the consideration for the renewal you know and you got to remember that the the the alternative to getting these renewed is these companies may have to take the business out to bid which is something we definitely don't want them doing then one one other question just on margins obviously you know there's a big theme, efficiency, workflow, et cetera, and there was a nice uptick in margins, you know, quarter over quarter, and I understand there could be some pressure on a go-forward

base, at least short-term, but how far along are you on your sort of short, or how far along are you on your initiatives?

So this, Jerry, this might be a good time. You know, during our first call in March, we had kind of announced that we were going to deploy a number of process improvements and that we would talk a bit about those. Maybe this is a good time to give you some color around those. You know, if you take a look at our entire workflow, there's really three primary workflows or processes. There's source to contract. So that's where we identify new prospective service providers. We put them through our vetting process. We sell them on the Quest value. We then negotiate terms with them, payment terms, service requirements, expansion opportunities, CPI, et cetera, and then we get them under contract. So that's kind of always going on. It's the opposite side of our business as sales. So it's constantly in motion. We're constantly working to find new service providers to service our customers. I'll give you an idea of one of the projects we've got going on there. It's called our Market Alignment Project. This is where we're tracking unit costs, so cost per yard, cost per ton, disposal cost and just just to make sure that we're getting the very best cost in every market that we operate in and making sure that within a given market that our pricing is consistent we since the onset of this project we've seen a 200% improvement in the cost of sales from that initiative. The next major process is procure to pay. So this is where we're procuring services. We're negotiating pricing from our vendors to provide services to our customer. This is the fulfillment part. So our customer requires a service. We have to fulfill that order. So we negotiate with the vendor. Then we receive the vendor bill. We run it through our AP processing platform. So zero touch or one touch for exception management. We process for payment. And then we make sure that we pay according to terms. You heard Brett mention earlier that just due to some disruptions from the past we we were perhaps paying haulers and service providers ahead of schedule or ahead of terms so that was a major project of ours is to pay our vendors on time and since march there's been a 46 improvement in paying haulers on time and obviously paying them on time implies that we've extended those payments. So it's certainly contributed to cash generation. Processing bills, you know, there's probably some questions about, are you tracking production? There's been an 83% improvement in vendor bill processing on time. And the exceptions are way down. There's been a 30% improvement on exceptions. And exceptions can cause those disruptions that can be very costly. So we've realized some very nice improvements in our procure-to-pay process. The last major process is what we call order-to-cash. So that's when the customer requires a service. We fulfill that order. We dispatch that order to our service provider. We confirm that the service was executed. We then prepare invoices to our customer, and then we collect. So there's been a significant effort to speed the rate of billing customers. And since March, there's been a significant improvement. So one of the key metrics that we look at is the percent billed within 30 days. So typically in the waste business, when a service is provided, say, in the month of July, the invoices start coming in in August. So we consider billing on time is billed within 30 days. So we have improved from 69% to 75% in June on billing customers on time, which obviously directly correlates to better cash management. The last, I know I said three major processes. We've also been involved in cleaning up our data. So we had a massive purchase order and sales order cleanup. So we use POs and SOs to track all the services that are requested and provided to our customers. and there are there are many different reasons to have purchase orders or sales orders remain open sometimes they're requested and then they're canceled or they're changed etc and you have to keep those purchase orders and sales orders up-to-date and current we've had a 84% improvement in PO's and 78% improvement in SOs. So that has allowed us to bill faster. It's going to create much less variability in our financials. And for the first time, we now have flash reporting where we can get a view of our business on a weekly basis. So there's probably more than you were looking for, but I just thought I'd give you kind of an update on some of the projects that we've been working on. What inning do I think we're in? I would say we're probably in the bottom of the fourth. So we still have a ways to go, but what you're seeing from the results is that we're extracting more GP out of the business that we have. It's unfortunate that our business is a bit smaller today, largely driven by those industrials, but we're much more efficient and we're extracting more GP dollars out of the revenue that we have.

I already asked probably one too many questions, so I'll jump back in line.

Thank you. Your next question is from the line of Owen Rickard from Northwind Capital Markets. Please go ahead.

Hey, guys. Thanks for taking that question. Just quickly, it did sound like debt pay down was kind of the main priority going forward, but is there any way you can talk about maybe potential reinvestment in technology or other growth initiatives just in combination with debt pay down? Anything to call out there?

Well, I mean, I certainly think that is a key priority for us as well. I mean, I still think that the repayment of debt is number one. You hear us often talk about our AP platform. You know, just for clarity, our AP platform is just one component of our entire platform. I'm not sure if we've confused the market and created the illusion that the AP platform is our platform. It's not. It's one segment of our platform. So our key focus is on improved processes, which you've heard me talk about, and also automation. So, you know, I definitely see investment in further tech development and automation as we move forward. But, you know, our key focus is still repayment of debt.

Hey, Owen, it's Dan Freebrook here. Just to follow up, from a board perspective, we're absolutely committed to what we talked about, which is debt, which is driving efficiencies, but also supporting the business so we can grow more quickly and more profitably. And I see that coming down the pike as well. But first and foremost, fixing the underlying processes, as you can hear from Perry's descriptions, is really the key step because it does unlock cash. It does increase efficiencies. It improves customer relationships and communications with customers and vendors, all of which are necessary to get to the next step. And as Perry said, we're on the way there. And once the processes are standardized, and we haven't talked about it yet, but Perry and Brett will talk about the excellence initiative, all that is enabling us to automate more successfully and more quickly to get to sort of the next level. So all of that is part of the plan. We're in that first phase, which is cleaning up and driving basic efficiencies into the business.

Great. Thanks, guys. Your next question is from the line of Aaron Esfakala from Craig Hallam. Please go ahead.

Yeah. Hi, Perry and Brett. Thanks for taking the question. You know, maybe first for me, can you just give us an update on the ramping of some of the new business wins from the last year, and then just also on the, you know, cost for customer onboarding and vendor management, you know, from the past couple quarters, or we're getting towards the tail end of those, you know, implementations and costs there?

Yeah, the implementations and onboarding is complete. So those temporary increase in cost, we're through that now. So we are now in the optimization phase of those new customers. So step one is get them onboarded, get them accustomed to the new model that they're on, making sure that the billing is accurate, making sure our vendors completely understand the service requirements and expectations. All of that is done, but it's a big lift up front. So now it's about service optimization, landfill diversion solution. So that's the normal model that we operate. So we're past that now. As far as onboarding new customers, we have onboarded several new customers already this year, but they're not dropping on us all at once like they did last year. So I don't anticipate the same pain that we had last year. Did that help?

Yeah, no, it's helpful. And then, you know, on the client attrition front, is there, you know, new developments there or is most of what, when you kind of talk about client attrition, Is that just some of the stuff that we've seen over the past year?

Yeah. Most of that attrition, you know, nothing has changed, right? It's from the difficult business, the mall business that we sold off. We're counting the reduced volumes in industrials as attrition. And then we had a customer that was acquired, and that was part of the attrition. But there's, you know, there's no new attrition. This business is a very sticky business. We have great relationships with our customers. We actually have a very high retention rate.

And I certainly don't expect, you know, to see the same rate of attrition that we had last year. yeah just uh just to add in you know about 80 to 90 percent of of all of our attrition that we discussed was was in the back half of last year so it's it's largely through through all of our numbers okay appreciate that and then you know saw the the commentary on on a new win and and you know i understand a little bit of the dynamics on the pipeline slowing but can you just do you talk about that new win um you know any kind of sizing there and just any key areas of focus in

the pipeline from an end market perspective maybe where you're seeing um seeing strength or traction yeah so you know we actually for this quarter we had two nice two nice wins one one was an expansion where we doubled the business with a a large uh national retailer and then um we We actually had a new customer come on board from the restaurant sector, multinational restaurant chain. So we typically don't talk much about the size of the accounts, but I will tell you that we really don't pursue anything under six-figure. It's, you know, at a very minimum, if a client isn't spending at least a million dollars or more per year, we're not pursuing them at the moment, unless, you know, we see an opportunity to take a small share and then rapidly expand it from there.

So those two wins are in that, you know, they're in that size that all of our clients are. you know we've we've uh we've talked about seven and eight figure we don't really get any more specific than that but these two wins are they're in that size all right thanks for that and then just maybe one last one um you know appreciate the commentary on the workflows but um you know in good cash flow generation this quarter sounds like there could be more to come are you still kind of confident in getting the DSOs down into that mid-60s range. I don't know if there's a time frame for that, but just any other color there would be helpful.

Hey, Aaron, this is Brad. I'll take that one. You know, we certainly remain very confident about cash flow going into the second half of the year. As you pointed out, we had a really strong Q2, especially in the back half, as we really started to see those initiatives start to gain traction and push through the balance sheet, which was fantastic and we've still got some several opportunities to work through and remain confident so we may not get to you know all the way into the 60s by this year but I certainly do expect that at some point as we get into next year we're very confident about our ability to lower those as we move forward we saw a little bit of improvement from Q1 to Q2, but really, we'll continue to see better improvement in the back half.

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

Your next question is from the line of Greg Kitt from Pinnacle Family Office. Please go ahead.

Thank you for taking my question. Brett, maybe you could give a little more color on what's giving you that confidence on the DSOs. It seems like there could be 10 days of opportunity here in the back half. Can you help us understand what makes you so confident?

Yeah, absolutely, Greg. You know, cash management is a day-to-day activity for us right now. And I'm confident just seeing the improvement that we continue to make day in and day out in our cash flows. You know, as we talked about, accrued AR was one of the pieces that was holding us back and it driven AR or DSOs a little bit higher. Those take a little bit longer to work all the way through the balance sheet to collections. So, we were expecting that opportunity to push through to the back half of the year, but certainly the work that the teams are doing to build faster, the visibility we're getting from our systems has enhanced that as well. So, kind of all those things coming together. Collections, you know, overall, I've mentioned we don't have any significant concerns from a collections activity, but there are opportunities to get a little bit tighter, manage our customers a little bit tighter. We're seeing that as well. So there's just several different initiatives. It's hard to pinpoint just one, but just the day-to-day cash management that the teams are working on has been impressive.

Thank you. And what you can control more easily is the payables and so you've obviously flexed that pretty hard this year on the dso's it sounds like you're doing what you can and some of the accruals take some time um but maybe just because the house like what do i think needs to happen for the stock to work i think the first thing is you know like gross profit and ebitda growth but but maybe one tied for number one is free cash flow. And so AR is the biggest opportunity to do that in the near term. Would you consider giving us any sort of color on how you think about July, considering that some of these initiatives take time and you maybe haven't at the end of the June quarter, we just didn't have enough time to get through accruals to see real progress on the ARDSO side?

Yeah, that's kind of back to the previous comments certainly second half of the year you know we were seeing improvements more improvement in the back half of q2 um so that gives us confidence going forward um we've certainly continued to make improvements uh already and and we're excited about having those materialized and and talking about those in q3 thank you and maybe one last one for me is um i'm going back quite a ways.

I think initially when I first started to look at Quest, it was the whole trend. This is going back, I don't know, however many years, five, six, seven years. It was, we're only going to take business that we know is really profitable and then we'll try to grow into maybe lower gross profit margin business lines, but there's still incremental dollars that we can pick up and we We don't have any additional material like operating costs to win those gross profit dollars. What I feel like I'm hearing now is we'll take some margin that's – it's changed a little bit. We'll take some business that's lower gross margin today because we feel really confident about our ability to reduce costs over time. um maybe it would be helpful for me to understand uh how you think about what is that timeline for you to reduce cost it i've historically thought about 12 months um i would love to hear your opinion and is there a way to think about how material those improvements could potentially be so um hey greg it's perry um what what you heard me talk about earlier today was really directly related to the few renewals that we've had.

So I'll tell you that the new business that we've onboarded this year actually is at a higher GP percentage as the new customers last year. So we're actually being aggressive with our pricing. But I think you're probably right. You know, it's going to take a good year to fully optimize a customer, maybe even with certain ones, even a little bit longer if we're looking at share wallet. But the strategy really hasn't changed at all. It's it's land and expand. And I think you've heard us talk about that before. Still the strategy today. You know, we have to be competitive enough to win the business. We don't sell price. We sell value. But in today's kind of cost-focused environment, companies are taking a close look. So I think we've done a great job by bringing on new business at a higher gross margin than we did last year. And we still have opportunity to grow.

Hey, Greg, it's Dan. Just to follow, I think you and I have been involved. It's about the same time. And the engine that drove Quest, now we've thought, more behind us, was to Latin expand. It was always bring in a customer and then grow gross margins by adding valuable services, not by taking incremental business at lower margins. What we are seeing, though, in addition to that, though, which Perry talked about in his script, that there are opportunities for us given as our confidence in being able to deliver increases for the reasons that Perry described. We feel more confident to work with our clients to take a share of the profits. That's sort of the nuance, but the underlying strategy and the way that Perry and Brett and the team have gone after it hasn't really changed.

Thank you. I have one last question, and I guess it really goes to what sounds like some cyclicality with your industrial customers. I guess I address it head on. There hasn't been any loss of any of those major industrial customers or loss of service lines. Has there been anything like that? Or is this really cyclicality that, you know, I guess is hitting us right now? And I don't, yeah, maybe I'll just stop there. Yeah.

Yeah, Greg, there's been no loss, no loss of any industrial client and no loss of any line of business. It's this is simply a volume issue.

OK. OK. Thank you very much.

Yeah, you're welcome.

The last question is from the line of George Mellis from MKH Management. Please go ahead.

Thank you.

Good afternoon. I want to try to dig a little bit deeper into the revenue decline. In the queue, you list your, of course, you don't name the customer, but you talk about your largest customer. And they are down roughly $7 million, $7.3 million a year. So it means that all the other customers are down roughly six. And I think, Brett, you said roughly half of that, three million, is because of the RWS small-based business. So essentially, if we look at the business, except for that very large customer, it's down three million year-over-year. And could you provide a little granularity there? Try to help us understand how much growth there was, how much and how much decline there was. Brett, you did that, I think, in previous quarters. Try to help us understand that some parts of the business had declined, but you also added significant numbers and went up significant number of new customers in the second half of last year. So could you elaborate on that a little bit?

Yeah, George, I'll just kind of walk through, you know, you pointed to the queue, so I can kind of walk through where we were at with the MD&A. So, year-over-year revenues were down $13.6 million, right? But we did call out that roughly $17 million of that was related to both the industrials and divested REIT business, which was $3 million. So that alone, those two factors alone contribute to all of the growth. We were actually up overall year over year in revenue aside from those. And to your point, that is bringing on the new customers, which contributed, you know, $8 million in incremental revenues compared to last year with the offset of the attrition that we've talked about, which was, you know, largely later in the back half of the year that was mostly related to customers bringing in that had been acquired and bringing their services in-house. So, overall, the business, aside from the industrial weakness and aside from the reed divestiture, was, you know, I don't want to say strong, but it certainly was up year over year.

So just to try to understand the numbers, and I'm glad you pointed that out because I didn't read the whole queue. I didn't have the time. The industrials and the REIT, there was a decline of $17 million. The new customers was an addition of $8 million. So that gives us a decline of $9 million. And how do I square that with the $13.6 million?

So, Ian, I'll just rephrase a little bit. I said 17, but it was 16 million. REIT plus industrials was 16 million, right? So versus a 13.6 million loss, we had to offset that. We had new customer revenue of 8 million with an offset of 5 million of attrition, which gets you your 3 million up. Offset.

Okay. That makes sense. Thanks a lot. I appreciate that. Let's see. We did talk about the DSO a great deal, and so I appreciate the answer you gave to Greg, and that seems massively, massively important. In terms of the customers, maybe that's a question for Perry. In terms of the customers where you really have an opportunity to improve the gross margin, what percentage of the current revenue base that is? I mean, it's at least those $8 million, I imagine, that was the contribution from the new customers. But how do you think about the chunk of the business that you have that really is right for, you know, that has to be optimized?

Yep. So, George, you may have heard in my initial remarks, we've refined our share-of-wallet process. So, we're managing our share-of-wallet now just as we do new sales. So we have a share-of-wallet pipeline with all the opportunities documented, and now we've partnered our sales team with our client solutions team. So client solutions owns the relationship. Our sales team have the sales skills. So working as partners, you know, we plan to expand share of wallet essentially for all of our customer base. We have, you know, we don't really talk about the size of our pipeline, but let me just say that the share wallet pipeline is is very significant, and, you know, we're aggressively pursuing both new prospective clients and share of wallet.

The customer, you took on some of those customers maybe at slightly lower margin with a plan to optimize those margins. How big, is there a way to isolate that and see what part of your revenue that is?

Yeah, I'm not really sure we can do that.

I'm a little unclear as to what you're asking. We talked about the two new customers for this quarter, and I kind of gave you a rough idea of size. And, you know, well, I'll tell you what.

Please.

Yeah. Yeah, so we, I mean, we have so many different share of wallet opportunities, George. It's a little difficult to give you a specific answer on what the opportunity is. We have one, we have two clients now where the expansion has essentially doubled the size of the account. And, you know, we have others where the growth opportunity may be another 20, 25%. It really depends. You know, it's a very client-specific issue, so I don't really have a good answer for you.

Okay. I appreciate you trying. I appreciate it. And then I have just one final question on the pressure that you're seeing on margins from you, Newell. I think that's been a feature of the business probably from the beginning, but I think it's the first time that you guys really sort of discuss it or, you know, bring it out. Is there a particular reason at this time of no pressure and maybe they're pressuring you more? But is there any particular competitive development that happened, or is it because of the concentration you have in the business? Or if one large customer does it, it hits you more, you know, has more of an impact.

You know, George, I think there's been a shift in the market, right? So, you know, our model is still in great demand. And you've heard us talk in the past about the importance of sustainability, data, metrics, and those things are still very important to our customers. But cost savings and cost reduction has risen to the top priority, right? Companies are back to business. They want to save money. You know, there's uncertainty in the market. And whenever there's uncertainty, you know, companies operate, you know, extremely well, which means they're just like us. They're looking at their cost. So there's nothing new other than the priority has shifted a bit more towards cost savings, perhaps over sustainability. But our customers today, they still want landfill diversion and sustainability. But today, it has to be cost neutral or better than the cost of landfill.

Very good. Thank you very much.

Yep, you're welcome.

Thank you very much. There are no further questions at this time. I'd like to turn the call back to Perry Moss, CEO, for closing comments. So please go ahead.

Great. Thank you, operator. On behalf of Dan and Brett, we'd like to thank everyone for joining us today. I do want to reiterate that the market for our asset-like model remains robust and strong, and our initiatives are beginning to show results. We remain committed to generating cash and the repayment of debt, and we are and we will continue to take decisive action to continuously improve upon our business. So with that, we'd like to thank you all for joining us today.

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