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Day. Welcome to Quest Resource's 1st quarter of 2026 earnings conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw a question, please press star then 2. Please be aware that today's call is being recorded. I would now like to turn the call over to Ryan Coleman with Investor Relations. Please go ahead.

Thank you, operator. Thank you everyone for joining us for Quest Resource's 1st quarter 2026 earnings call. Before we begin, I'd like to remind everyone that this conference call may include predictions, estimates, and other forward-looking statements regarding future events or future performance of the company. 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 the company's current expectations, estimates, projections, beliefs, and assumptions and involve significant risks and uncertainties.

Actual events or the company'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 the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made, and the company undertakes no obligation to update such statements unless required to do so by law. In addition, this call may include industry and market data and other statistical information, as well as the company's observations and views about industry conditions and developments.

The data and information are based on the company'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 also 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. I'd like to turn the call over to Perry Moss, Chief Executive Officer.

Thanks, Ryan. Thanks everyone for joining this afternoon. Our first quarter marked a steady monthly sequential improvement in the business from the fourth quarter, which was consistent with the seasonal trend we typically observe, though slightly better than the prior year. Revenue from our industrial customers increased primarily due to seasonality, though we did see some incremental revenue from certain customers above the usual seasonal acceleration. However, the industrial portfolio as a whole remains challenged as a result of the softer manufacturing environment. Meanwhile, non-industrial parts of the business performed largely in line or better than anticipated as our focus to diversify the business into sectors like restaurants, hospitality, and retail helped to partially offset the lower industrial volumes. Notably, our performance improved from month to month throughout the quarter, and we ended the quarter with an encouraging trend.

While it is far too early to determine the durability of this trend, we are cautiously optimistic given the exit rate of the quarter. This is tempered in part by recent geopolitical events as well as the risk of extended period of elevated fuel prices. As we continue to communicate, we are acutely focused on what we can control. We continue to demonstrate a firm grasp on the operations of the company as our operational excellence initiatives are delivering improved performance across the business from exception management, wallet share expansions, billing and collections, and overall productivity and cost containment efforts. We're controlling costs very well and taking proactive measures to give ourselves incremental financial flexibility as macroeconomic conditions improve. We're very encouraged by our progress on each front and expect these initiatives to drive additional efficiencies going forward.

These efforts also began to deliver important sales momentum during the second half of 2025, which included the launch of a significant expansion of an existing retail customer, the onboarding of a new full-service restaurant customer, and expanded share of wallet wins with 2 major customers. While each of these wins were delivering incremental revenue since shortly after their announcement, the one-time costs associated with onboarding these clients had been masking their profitability contributions. I am pleased to report that each of these recent wins finished the first quarter as full contributors to our financial results as we have completed the onboarding period of one-time cost to execute the service change-outs to serve these new or expanded programs. Our new sales pipeline remains active, and we continue to engage with several exciting opportunities to add large national companies to our portfolio.

While the overall macroeconomic environment continues to slow the overall decision-making process for many of these prospective customers, we are encouraged by the discussions we are having as the Quest value proposition continues to resonate with key prospective customers. We ended 2025 with better momentum, though saw opportunities get pushed into 2026. We remain very engaged with these prospects and believe that we will be able to successfully win and onboard our share of these potential customers as the macro backdrop improves and confidence returns. Just recently, we won a new contract with one of the largest franchisees in the quick service restaurant industry. This customer is a large national operator that carries plenty of white space for wallet share expansion as we execute effectively.

It also marks another important win to diversify the business and will help to offset the seasonal fluctuations of our larger industrial customers. We onboarded this new customer on May first with minimal service change outs. We also remain encouraged by the number and size of share wallet opportunities with existing customers, which remains a central focus of ours. Last year, we heightened our focus on this sales channel and structured a more robust internal systems and processes to track, evaluate, and pursue these opportunities. We are very happy with the early successes we've had. We have broadened the number of waste streams that we're handling for some clients, adding new value-added services or have captured larger share of customer locations.

Our growing pipeline of opportunities across both new sales and wallet share expansions leaves us confident that these initiatives will contribute to greater levels of organic growth for us going forward and be strong contributors to gross profit dollar growth as we continue to execute our land and expand strategy and optimize service levels. We also continue to diversify the portfolio as we grow in non-industrial end markets like retail, hospitality, grocery stores, and expand into new markets like healthcare and more. Our technology and capabilities continue to be key differentiators for us and are driving improved customer service levels and vendor management practices. Our technology platform's ability to identify exceptions in vendor invoices is central to our value proposition of cost avoidance, cost reduction, and improved service levels.

The platform's ability to identify these exceptions continues to improve. Importantly, we have invested in automated no-touch capabilities to enable our team to effectively rectify these exceptions. Customer and vendor-facing advancements like these create real value and make it easier to do business with Quest, also help to optimize our internal processes and overall profitability. Overall, macroeconomic conditions and a softer industrial environment continue to flow through to reduce volumes from our large industrial customers. However, we continue to make very encouraging progress streamlining our overall operations and growing in non-industrial end markets. We remain as confident as ever that we are on very solid footing for when conditions improve and as our softer year-over-year revenue is a function of volume and not one of customer attrition.

The operational improvements we've implemented over the past year will drive higher leverage when conditions normalize, and we are encouraged by the trend we finished the first quarter on and cautiously optimistic as we look out to Q2 and the rest of 2026. Looking ahead, our key priorities remain unchanged in 2026. We remain focused on growing the business with new and existing customers, driving margin improvements as we execute our operational excellence initiatives, continuing the development of our operating platform, improving cash generation, and reducing our debt balance. With that, I'd like to turn the call over to Brett to review our first quarter financial results in greater detail. Brett?

Thanks, Perry, and good afternoon, everyone. Revenue for the first quarter was $61.7 million, a 10% decrease from one year ago, but a sequential increase of 5% compared to the fourth quarter. The year-over-year decline was primarily driven by ongoing headwinds from certain clients in the industrial end market, which reduced revenue by approximately $4 million compared to the prior year. These headwinds are mostly confined to a few clients and are primarily related to lower waste volumes and services which are directly tied to the clients' lower production volumes.

Notably, the year-ago period also included $3 million of revenue from our mall-related business, which was divested in the first quarter of 2025. Excluding these specific headwinds, the business continued to grow by approximately $2 million, mostly related to new clients in the expansion of client business or wallet share during the fourth quarter of 2025. This growth in business was partially offset by client attrition of $1.7 million, primarily related to a single client loss in the first quarter of 2025. While this growth was modest, it speaks to the efforts of the entire team to offset the impact of the industrial headwinds. It also speaks to what should be less noisy comparables year-over-year, as we have now sunsetted the higher than normal attrition experienced in Q4 of 2024 and Q1 of 2025.

As a reminder, this attrition was isolated and mostly related to customers that were acquired and absorbed into the incumbents waste solution. Since then, we have returned to normalized customer retention rates, which have been very sticky historically. On a sequential basis, the improvement was driven by higher seasonal volumes from our industrial customers and continued growth across much of our non-industrial portfolio, with performance strengthening across the quarter. Moving on to gross profit. In the first quarter, gross profit dollars totaled $9.7 million, a decline of almost 12% compared to the prior year, but a sequential increase of 6%. This resulted in a gross margin of 15.7%.

The declines in both gross profit and gross margin compared to the prior year were primarily isolated to the headwinds from the select industrial clients, which contributed to lower volumes as well as isolated margin pressure. These declines were slightly offset by both improved gross profit and gross margins across the remainder of the business as operating initiatives, maturing margins from new clients and wallet share expansions continued to take hold. The sequential improvement was in line with our expectations provided last quarter and representative of the seasonal improvement from industrial customers as well as the contribution of recently onboarded customer wins and share of wallet expansions as we have cleared the one-time costs associated with those launches.

We look ahead to Q2, we expect sequential growth in gross profit dollars as recent new business wins and wallet share expansions finish Q1 as full contributors to our financial results.

Additionally, the new quick service restaurant customer will launch in Q2 and is expected to begin ramping fairly quickly as it requires fewer associated service provider change outs, which means minimal startup costs and thus should contribute gross profit dollars more quickly than a typical new client win. While we expect to continue to experience some margin pressure in 2026, both in a challenged industrial volume environment as well as from the mix impact of our land and expand strategy, we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients, optimizing the client wins from the previous years, and continuing to drive operational improvements across the business. Moving on to SG&A, which was $8.4 million and better than our estimate for the quarter that we provided on the last call.

Sequentially, SG&A grew 9%, driven mainly by the resumption of our bonus expense. Our operational excellence initiatives continue to deliver strong productivity and cost containment results, we remain focused on maintaining this discipline going forward. To that, compared to the prior year, SG&A has decreased by $3 million, a 26% reduction year-over-year. Moving on to a review of the cash flows and balance sheets. We ended the quarter with $1.1 million in cash and approximately $63.4 million in net notes payable. As a reminder, in March, we refinanced our ABL with Texas Capital Bank to replace the prior ABL with PNC. Concurrently, we negotiated with Monroe Capital, who holds our term debt to provide both fixed charge and leverage covenant easements across 2026 and into 2027.

Those combined efforts will provide ample cushion to operate in this challenging operating environment while we continue to focus on the execution and completion of our initiatives to drive additional efficiencies and operating leverage across the business, while also investing in driving growth through new clients and wallet share. Additionally, the new arrangement with Texas Capital Bank gives us more flexibility to use the excess availability on our ABL to make voluntary early payments on our high interest term debt, which is currently about a 500 basis point spread between the two credit facilities. Accordingly, during the first quarter, we made a $2 million early payment on the Monroe term debt, which will reduce interest expense and should free up additional cash to allocate toward debt paydown.

We anticipate executing similar early payments as appropriate throughout the year as we work to reduce our overall cost of debt and strengthen our balance sheet. Operating cash flow in the quarter was slightly positive, roughly $200,000. This was a sharp improvement compared to the prior year, despite lower revenue and gross profit dollars, and was driven by the ongoing optimization of our billing and collections processes and our improved vendor payment processes, which both continue to drive improvements in our cash cycle.

This progress was partially offset by some of the moving pieces of the ABL refinancing, which used a modest amount of cash at the time of the transaction. Our DSOs finished the quarter in the mid-70s, which was largely unchanged from the fourth quarter. Accounts receivable was up $3 million and in line with the sequential increase in revenues. The overall trend in DSOs remains downward, falling from the 80s one year ago, and we continue to implement measures to improve our cash cycle. We remain committed to reducing DSOs going forward and believe we have incremental initiatives in our control to drive improvement.

During the first quarter, we also reduced the number of working capital days to 11.5, roughly an 11-day improvement from a year ago. Our financial strategy remains focused on managing our cost structure, leveraging our operational excellence initiatives to drive cash flow and paying down debt. We also continue to seek ways to elevate our billing and collection practices and further optimize working capital. We expect these measures, along with our focus on continuous improvement, to improve our cash cycle, strengthen our balance sheet, and provide incremental financial flexibility as the operating landscape improves. With that, I'll turn the call back over to Perry for some closing comments before we open it up for Q&A. Perry?

Great. Thank you, Brett. Our first quarter saw improved performance from the fourth quarter, with results getting better throughout the quarter. Some of this was the typical seasonal acceleration, but it was modestly better than the prior year. It is also clear that the business is benefiting from the team's strong execution, and it is evident in the numbers driven by the now fully onboarded recent new wins and wallet share expansions. It remains a difficult operating environment, but we are confident that we are better positioned to drive improved financial performance. We believe that with continued execution, we will be well on our way to delivering improved shareholder returns and achieving a valuation that is more reflective of inherent value of the business. With that, I'd like to turn the call over to our operator to move us to Q&A. Operator?

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then two. At this time, we will pause just momentarily to assemble our roster. Our first question here will come from Aaron Spychalla with Craig-Hallum. Please go ahead.

Yeah, good afternoon, Perry and Brett. Thanks for taking the questions. Maybe first for us, you know, on the new win in the QSR, congrats on that. Any details you can give on, you know, size, number of locations? You talked a little bit about white space for land and expand, so just curious on, you know, how many waste streams? Then it sounded like minimal service provider changes, so it sounds like that can ramp pretty quickly as well.

Yeah, that's right, Aaron. You know, we, as you know, we don't give specific details about these clients, but this is consistent with all of our new growth targets being, you know, 7 to 8 figure. This is a 7-figure account. We landed a little over 50% of the portfolio, so there's plenty of room for continued expansion. This came from another asset-light provider, so they saw, you know, value in the Quest program over the program they were currently on. You know, early reports, the other award winner was also an asset-light company, and some early indications are that our launch process and transition is much smoother than our competitor. That leaves me optimistic that there's some growth potential there. The material streams here are typical municipal solid waste and recyclables.

Understood. Thank you for that. You know, on the share of wallet initiatives, is there a way to think about just potential growth you see there, whether, you know, it's penetration rates or, you know, average number of waste streams? It just, you know, seems like you're, you know, you saw good success kind of coming out of the last year and are optimistic moving forward.

Yeah. As you know, we put some additional focus and discipline around our share of wallet beginning last year. You know, we don't really talk about all of the share of wallet wins that we've had. We've had several dozen of those wins, but some of them are not material enough to really mention. So the share of wallet that we typically talk about, again, fall into that same category as new business. These are large opportunities to expand. We have, you know, I would say 5 or 6 opportunities with some of our largest customers to bring on a whole another segment of their business. We're in, you know, very opportunistic discussions, I would say, with them. We've got plan, rolled out plans on how to implement this new business.

Look, the business hasn't been sold yet, but the conversations are very positive and, you know, I expect to see a lot more growth in the share of wallet sector. If you recall, you know, because of the uncertainty in the general economy, we decided that, you know, instead of only focusing on new business, which we're still doing, we would put added emphasis on share of wallet because these are existing relationships. These are customers that already trust us. They already know that we execute. It's an easier yes than with a new prospect. I would tell you that, you know, we don't give the value of our pipelines. The new business pipeline is very robust. The share of wallet pipeline is about 50% of the size of the new business pipeline. It's significant.

All right. Thank you for the color there. Then just maybe one last one. You know, what are you seeing on inflation, you know, across the commodity space on the business? Any impact to, you know, customer decisions or your vendor network? Just how you're managing that and thinking about that moving forward?

Yeah, you know, it's a really good question. Certainly with the current fuel situation. You know, we kind of got out in front of this and started working with our vendors and our customers, you know, before this really fast ramp-up in fuel. We've got, you know, good protection in our contracts where uncontrollable costs can be passed through. You know, one of the value propositions that we deliver to our customers is we always fight on their behalf. Instead of simply just taking on cost increases and passing them through, we do everything within our capabilities to push those off or to minimize them. I would say that we haven't seen anything significant to affect the business so far. We've been proactively working on plans should, you know, should significant cost increases come through. So far so good.

All right. Thank you for taking the questions. I'll turn it over.

Okay. Good talking to you, Aaron.

Again, if you have a question, please press star then one to join the queue. Our next question will come from Gerry Sweeney with ROTH Capital. Please go ahead.

Good afternoon, Brett and Perry. Thanks for taking my call.

Hey, Gerry.

Do you ever disclose or even directionally how big the industrial business is for you guys in terms of revenue?

No, Gerry, not directly. We've tried to do a good job over the last, I don't know, year or so plus to call out the variance, that's taking place with those select customers within the industrial group. As a reminder, the industrial group's larger than some of the variance. The clients that are driving the variances, we're only speaking to the select couple of clients that sit in an isolated industry, market, as the variance. We haven't called that out largely.

Got it. I, the reason I ask is, I mean, we're starting to see some data from like the ISM that's turning positive for the first time in years. I think there's some freight data that's showing maybe some price increases indicating, the real goods economy is, dare I say, starting to expand a little bit. You know, these are maybe forward-looking indicators. I'm just curious if you have any thoughts on that or are these, you know, some of these industrial clients sort of in their own little select world that may not be benefiting from what we're, what I'm talking about?

Yeah. you know, Gerry Sweeney, I think the these few customers that Brett Johnston referenced, they're in a specific category of the industrial manufacturing sector that has really been pretty soft. I think we've said they operate in the ag sector.

Yeah.

You know, if we look at sequential volume increases from Q4, they were largely what we would expect. If you compare the increase to last year, the increases that we realized in Q4 this year were slightly better. We're not predicting any significant increase in volume yet. We're cautiously optimistic. We did see some good trends, but we don't control our production. Volumes, if they continue to perform like they did, particularly in March, I think, we'll see some nice trending. We've built this business over the last year to take every advantage of any tailwind that we can get. We just haven't had any.

Sure.

March, we may have had a little breeze, and I think we took advantage of it. You know, if those early indicators flow through to these specific customers in the ag sector, I think, you know, we'll benefit from that.

Sure. There's a lot more operating leverage there.

Yeah. Gerry, I'd also remind, you know, you as well, one of the positives for us is from a year-over-year perspective. If you look back at when we started really talking about those struggles on the industrial side, it was in Q1 of last year. From a year-over-year comparison, we're kind of sunsetting some of those challenges. We did see some additional reductions across last year, but the bulk of the decline in those clients came largely in Q4 of 2024 and even Q1 of 2025. Despite some continued pressure there, maybe we don't get back to the same volumes we had a year and a half ago. From a year-over-year comparison, it's not gonna hold us back from showing growth.

Gotcha. Switching gears, that QSR win, I think you talked a little bit about it, but, I don't know if I caught all of it, but, you said, I think you had 50% of the portfolio, and it sounded like another asset-light company got the other 50% of the portfolio. I'm just wondering if that sort of stores locations or was it sort of service lines?

Gerry, that's a good question. Those represent locations.

Okay.

Yeah, I don't have that based on service lines. I would expect that it would probably be linear, that we got a little over half the locations as well as a little over half of the service lines.

Got it. Is that QSR in meat, fish, meat, fish, or chicken?

The answer is yes.

Okay.

Yeah. These are major, you know, major brands that are very recognizable. In fact, our in came from a referral from one of our corporate customers who, you know, operates some of those brands and made the recommendation that this franchisee should look at our model. Yeah.

Yeah. Got it. All righty. I'll jump back to queue. Thanks a lot.

Sure. Thank you.

This concludes our question-and-answer session. I'd like to turn the conference back over to Perry Moss for any closing remarks.

Great. Thank you. Thank you, operator. Thanks to all of you for joining this afternoon. We always appreciate your support and continued support and interest in Quest. We look forward to updating you all on the next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.