Earnings Call Transcript - QRHC Q2 2025

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to the Quest Resource Holding Corporation Second Quarter 2025 Earnings Call. This call is being recorded on Monday, August 11, 2025. I would now like to turn the conference over to Joe Noyons. Please go ahead.

Joe Noyons, Executive

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 risks and uncertainties. Actual events or Quest'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 Quest's filings with the SEC. You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties. Quest's 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'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 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 all that said, I'll now turn the call over to Dan Friedberg, Chairman of the Board.

Daniel M. Friedberg, Chairman of the Board

Good afternoon and 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, and 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, while 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 debt 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. Brett?

Brett W. Johnston, CFO

Thanks, Dan, and good afternoon, everyone. Revenue for the second quarter was $59.5 million, which was a decrease of 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 quarter. 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 experienced 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 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.

Perry W. Moss, CEO

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. 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 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 accounts payable 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 are well on our way to making significant operational improvements that will drive improved profitability, enhance 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 in 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 have 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. In the past, 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, that 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 costs we incurred on a temporary basis related to onboarding new clients and the transition to a new accounts payable 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-light 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, Operator

Your first question comes from the line of Jerry Sweeney.

Gerard J. Sweeney, Analyst

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 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 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.

Perry W. Moss, CEO

Yeah. Hi Jerry, this is Perry. I think our industrials will continue to follow the general economy. So it's tough to have any predictions on what's to come. I think the general uncertainty caused by the current economic conditions, tariffs, etc., have caused some challenges in our industrial sector. So 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 our food space sector, our grocery sector, they seem to be doing very well. So 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 some of those implications.

Gerard J. Sweeney, Analyst

How much of your revenue is oriented towards industrial?

Perry W. Moss, CEO

We have never disclosed that information, and we will continue not to do so.

Gerard J. Sweeney, Analyst

We can leave it there. I'll make it easy for 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.

Perry W. Moss, CEO

Yeah. No, very good question. Let me answer your last question first. This is pretty normal. Our typical contracts run for 3 to 5 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 small consideration for the renewal. But we picked up all of their distribution centers, which were not under contracts prior to that renewal. So I think this is temporary. I think our industrials are the most sensitive, but we always try to get something back to regain the consideration for the renewal. And you've got to remember that 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.

Gerard J. Sweeney, Analyst

Got it. And then I have another question regarding margins. There seems to be a strong focus on efficiency and workflow, and I noticed a nice improvement in margins quarter-over-quarter. I understand there may be some pressure in the short term moving forward, but how advanced are you in your initiatives?

Perry W. Moss, CEO

During our first call in March, we announced plans to implement various process improvements and intended to discuss them further. Looking at our entire workflow, we have three primary processes. The first is source to contract, where we identify new service providers, vet them, and negotiate terms before securing contracts. This part of the business is continuously active as we strive to find new providers to meet customer needs. A current project in this area is our market alignment project, which tracks costs like cost per yard and disposal costs to ensure we achieve the best pricing across our markets. Since starting this project, we've seen a 200% improvement in sales costs. The second key process is procure to pay, focusing on sourcing and negotiating service pricing from vendors. In this phase, we fulfill customer orders by engaging with vendors, managing bills through our accounts payable system, and ensuring timely payments. Since March, we have improved on-time payments to our haulers by 46%, which has positively impacted our cash flow. We've also enhanced our bill processing performance, with an 83% increase in timely vendor bill processing and a 30% reduction in exceptions that could disrupt operations. The final process is order to cash, which involves fulfilling customer orders, confirming service execution, invoicing customers, and collecting payments. We've made significant strides in expediting customer billing since March, increasing the percentage of bills sent within 30 days from 69% to 75% in June, which enhances our cash management. Additionally, we've worked on cleaning up our data, significantly improving the status of purchase orders and sales orders, which supports faster billing and reduces financial variability. For the first time, we have established flash reporting to provide weekly business insights. Overall, while we still have a way to go in completing our initiatives, we are extracting more gross profit from our existing operations, despite a smaller overall business size driven by industrial factors.

Gerard J. Sweeney, Analyst

Got it. Yeah, we can see it quarter-over-quarter.

Operator, Operator

Your next question is from the line of Owen Rickert from Northland Capital Markets.

Owen Ray Rickert, Analyst

Just quickly, it sounds like debt paydown is 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 paydown? Anything to call out there?

Perry W. Moss, CEO

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 accounts payable platform. Just for clarity, our accounts payable 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 accounts payable 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 I definitely see investment in further tech development and automation as we move forward. But our key focus is still repayment of debt.

Daniel M. Friedberg, Chairman of the Board

Hey Owen, it's Dan Friedberg here. I want to follow up. From the Board's perspective, we are fully committed to our discussions around debt, driving efficiencies, and supporting the business to grow both quickly and profitably, with that outcome on the horizon. The main priority is addressing the underlying processes, which you can gather from Perry's insights, as it's essential for unlocking cash, increasing efficiencies, and enhancing customer relationships and communication with both customers and vendors, all crucial for progressing to the next stage. As Perry mentioned, we're making progress, and once we standardize the processes, which we haven't yet discussed, Perry and Brett will go over the Excellence Initiative. This will enable us to automate more effectively and swiftly, allowing us to reach the next level. Everything I mentioned is part of our strategy, and we are currently in the first phase of improving and implementing basic efficiencies within the business.

Operator, Operator

Your next question is from the line of Aaron Spychalla from Craig-Hallum.

Aaron Michael Spychalla, Analyst

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 cost for customer onboarding and vendor management from the past couple of quarters or are we getting towards the tail end of those implementations and costs there?

Perry W. Moss, CEO

The implementations and onboarding are complete. We have moved past the temporary increases in costs and are now focusing on optimizing for our new customers. The first step was to onboard them and ensure they are comfortable with the new model, verify billing accuracy, and make sure our vendors understand the service requirements and expectations. That is all finished now, although it was a significant effort upfront. We are now concentrating on service optimization and landfill diversion solutions, which is our usual operating model. Regarding new customer onboarding, we have already brought on several customers this year, but it hasn't happened all at once like last year, so I do not expect to experience the same challenges we faced previously. Does that answer your question?

Aaron Michael Spychalla, Analyst

That's helpful. Regarding client attrition, are there any new developments, or is most of what you're referring to from the past year?

Perry W. Moss, CEO

Yeah. Most of that attrition, 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 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 to see the same rate of attrition that we had last year.

Brett W. Johnston, CFO

Yeah. Just to add in, about 80% to 90% of all of our attrition that we discussed was in the back half of last year. So it's largely through all of our numbers going forward.

Aaron Michael Spychalla, Analyst

Okay. I appreciate that. And then I saw the commentary on a new win, and I understand a little bit of the dynamics on the pipeline slowing. But can you just maybe talk about that new win? 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 strength or traction?

Perry W. Moss, CEO

For this quarter, we achieved two significant wins. One was an expansion where we doubled our business with a large national retailer. The other was acquiring a new customer from the restaurant sector, specifically a multinational restaurant chain. While we usually don't disclose the size of our accounts, I can say that we focus on clients that spend at least $1 million or more annually. We typically do not pursue accounts that fall below six figures, unless there's a chance to capture a small share and quickly grow it. Both of these wins fall within the sizes of our typical clients, which we've mentioned range from seven to eight figures.

Aaron Michael Spychalla, Analyst

All right. I appreciate the commentary on the workflows and the good cash flow generation this quarter. It sounds like there could be more to come. Are you still confident in getting the DSOs down to the mid-60s range? I’m not sure if there’s a timeframe for that, but any additional information would be helpful.

Brett W. Johnston, CFO

Hey Aaron, this is Brett. I'll take that one. 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 several opportunities to work through and remain confident. So we may not get to 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.

Operator, Operator

Your next question is from the line of Gregg Kitt from Pinnacle Family Office.

Gregg Kitt, Analyst

Brett, could you provide more insights on why you are confident about the reductions in DSOs? It seems there could be a 10-day opportunity in the latter half of the year. What contributes to your confidence?

Brett W. Johnston, CFO

Yeah, absolutely, Gregg. 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. As we talked about, accrued accounts receivable was one of the pieces that was holding us back and had driven accounts receivable 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, 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.

Gregg Kitt, Analyst

You can manage payables more effectively, and it seems you've made significant adjustments this year regarding days sales outstanding. You're doing what you can, although some of the accruals require time. To improve the stock's performance, gross profit and EBITDA growth are essential, but free cash flow is equally important. Managing accounts receivable could present a significant opportunity in the short term. Can you provide any insights regarding July, taking into account that some initiatives take time and that we didn't have enough time at the end of the June quarter to see substantial progress on accounts receivable days sales outstanding?

Brett W. Johnston, CFO

Yeah, that's kind of back to the previous comment. Certainly, second half of the year, we're seeing improvements more improvement in the back half of Q2. So that gives us confidence going forward. We've certainly continued to make improvements already, and we're excited about having those materialize and talking about those in Q3.

Gregg Kitt, Analyst

I'm reflecting on my early observations of Quest, which dates back several years. Initially, the approach was to focus solely on profitable business, with the intention of gradually branching into areas with lower gross profit margins, but still recognizing potential incremental revenue without incurring additional operating costs. What I'm sensing now is a shift in strategy, where accepting lower gross margins is more acceptable because there is a strong belief in the company's ability to cut costs over time. I would appreciate your insight into the expected timeline for cost reductions. I have traditionally considered a 12-month timeframe. Also, can you clarify how significant these improvements might be?

Perry W. Moss, CEO

So hey Gregg, it's Perry. 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 gross profit percentage as the new customers last year. So we're actually being aggressive with our pricing. But I think you're probably right. It's going to take a good year to fully optimize a customer, maybe even with certain ones a little bit longer if we're looking at share of wallet. But the strategy really hasn't changed at all, right? It's land and expand. And I think you've heard us talk about that before. Still the strategy today. 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.

Daniel M. Friedberg, Chairman of the Board

Hey Gregg, it's Dan. Just to follow. I think you and I have been involved about the same time. The engine that drove Quest now we've got more behind us was to land and 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, which Perry talked about in his script, that there are opportunities for us, given 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.

Gregg Kitt, Analyst

I have one last question regarding what seems to be some cyclicality with your industrial customers. I want to address this directly. There hasn't been a loss of any major industrial customers or service lines. Is there anything like that happening, or is this truly just cyclicality affecting us at the moment? I'll leave it at that.

Perry W. Moss, CEO

Yeah, Gregg, there's been no loss. No loss of any industrial client and no loss of any line of business. This is simply a volume issue.

Operator, Operator

The last question is from the line of George Melas from MKH Management.

George Melas-Kyriazi, Analyst

I want to explore the revenue decline further. In the quarterly report, you mention your largest customer without naming them, and they are down about $7 million to $7.3 million year-over-year. This implies that the other customers are experiencing a decline of about $6 million. Brett, you mentioned that approximately half of the $3 million decline is related to the RWS mall-based business. Therefore, when we consider the business as a whole, aside from that large customer, it has decreased by $3 million year-over-year. Could you provide more detailed information on this? Please help us understand the amount of growth and the extent of the decline. Brett, you've given similar insights in past quarters, indicating that while certain parts of the business have declined, there were also a significant number of new customers added in the latter half of last year. Could you elaborate on that?

Brett W. Johnston, CFO

Sure, George, I'll walk you through the updates. Year-over-year, revenues decreased by $13.6 million. However, we noted that approximately $17 million of that was due to the industrial sector and the divested REIT business, which accounted for $3 million of the decline. These two factors together explain most of the decline. In fact, our overall revenue was up year-over-year if we exclude those impacts. As for your point about new customers, they contributed an additional $8 million in revenues compared to last year, despite some attrition mainly in the latter half of the year as we transitioned customers who had previously been acquired to in-house services. Overall, aside from the weakness in the industrial sector and the REIT divestiture, the business showed an upward trend year-over-year.

George Melas-Kyriazi, Analyst

Okay. So just to try to understand the numbers, and I'm glad you pointed that out because I didn't read the whole Q, 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?

Brett W. Johnston, CFO

So I'll just rephrase a little bit. I mentioned $17 million, but it was actually $16 million. The REIT and industrials amounted to $16 million. In comparison to a $13.6 million loss, we saw new customer revenue of $8 million, offset by $5 million of attrition, resulting in a positive $3 million adjustment.

George Melas-Kyriazi, Analyst

I appreciate the clarification. It's clear that the discussion around the Days Sales Outstanding (DSO) is critical. Regarding the customers, perhaps Perry can address this. What percentage of the current revenue base presents an opportunity to enhance the gross margin? I estimate it must be at least the $8 million attributed to new customers. How do you view the portion of the business that requires optimization?

Perry W. Moss, CEO

We've improved our share of wallet process, managing it like we do with new sales. We have a share of wallet pipeline that documents all opportunities, and we've paired our sales team with our client solutions team, where Client Solutions maintains the relationship and our sales team brings in the sales expertise. Together, we plan to enhance our share of wallet for our entire customer base. While we don't disclose the specific size of our pipeline, I can say that our share of wallet opportunities are quite substantial, and we are actively pursuing both new potential clients and expanding our share of wallet.

George Melas-Kyriazi, Analyst

Okay. Very good. Regarding the customers and the revenue associated with them, do you feel you have a way to isolate that and identify what portion of your revenue it represents? Additionally, as Gregg mentioned, you may have taken on some customers at slightly lower margins with the intention of optimizing those margins. How significant is that?

Perry W. Moss, CEO

I'm not entirely sure we can determine that. I'm a bit unclear about your request. We've mentioned the two new customers for this quarter, and I provided an approximate idea of the size. We have numerous share of wallet opportunities, making it challenging to provide a specific answer regarding the potential. Currently, we have two clients where the expansion has effectively doubled the account size, while for others, the growth potential may be around 25%. It really varies on a client-by-client basis, so I don’t have a precise answer for you.

George Melas-Kyriazi, Analyst

I appreciate your effort and thank you for that. I have one final question regarding the margin pressure related to renewals. This has likely been a characteristic of the business from the start, but it seems this is the first time you have publicly addressed it. Is there a specific reason for discussing it at this moment? I understand that industrial clients are experiencing more pressure and may be exerting that pressure on you. Is there any particular competitive change that has influenced this, or could it be related to the business concentration? When a significant customer pushes for changes, does it tend to have a greater impact?

Perry W. Moss, CEO

Yeah, George, there has been a shift in the market. Our model remains in high demand. We've previously mentioned the significance of sustainability and data metrics, which continue to be important to our customers. However, cost savings and cost reduction have become the top priority. Companies are back to business and are focused on saving money. Given the uncertainty in the market, companies are operating efficiently, much like us, and are closely evaluating their costs. The priority has shifted slightly more toward cost savings over sustainability. Nevertheless, our customers still want landfill diversion and sustainability, but it must be cost neutral or more economical than using a landfill.

Operator, Operator

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

Perry W. Moss, CEO

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-light 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.

Operator, Operator

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