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Edited Transcript of QRHC earnings conference call or presentation 14-Nov-19 10:00pm GMT

Q3 2019 Quest Resource Holding Corp Earnings Call

SCOTTSDALE Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Quest Resource Holding Corp earnings conference call or presentation Thursday, November 14, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Laurie L. Latham

Quest Resource Holding Corporation - CFO, Senior VP & Secretary

* S. Ray Hatch

Quest Resource Holding Corporation - President, CEO & Director

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Conference Call Participants

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* Gerard J. Sweeney

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* James W Deyoung

Goudy Park Management, Llc - Managing Member

* Nelson Jay Obus

Wynnefield Capital, Inc. - President, CIO & Portfolio Manager

* Sameer S. Joshi

H.C. Wainwright & Co, LLC, Research Division - Associate

* David M. Mossberg

Three Part Advisors, LLC - Founder and CEO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the Quest Resource Holding Corp. Third Quarter 2019 Earnings Call.

Today's call is being recorded. At this time, I would like to hand the conference over to David Mossberg, Investor Relations Representative. Please go ahead, sir.

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David M. Mossberg, Three Part Advisors, LLC - Founder and CEO [2]

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Thank you, Lisa, 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 certain predictions, estimates and other forward-looking statements regarding future events or future performance of Quest. Use of the words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding Quest's future opportunities for growth; Quest's expectations for revenue, margins and profitability in future periods; Quest's industry position and industry trend; Quest's prospects, outlook and business strategies going forward; and Quest's belief regarding progress and timing. 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, including changing market trends, reduced demand and other competitive nature of Quest's industries discussed in greater detail in Quest's filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended December 31, 2018.

You are cautioned not to place undue reliance on such statements. And to consult our SEC filings for additional risks and uncertainties. You can find those documents on Quest's website at qrhc.com. Quest's forward-looking statements are presented as of the date made, and we disclaim any duty to update such statements unless required to do so by law.

In addition, in this call, we may include the industry, 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 believe 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. In addition, Quest's observations and view about industry conditions and developments are its own and may not be supported or agreed with by other industry participants or observers.

Certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures are useful to investors understanding the 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 on 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 that said, I'll now turn the call over to Ray Hatch, President and Chief Executive Officer.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [3]

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Thank you, Dave, and welcome to everyone on our call to discuss our third quarter financial results. Joining me today is Laurie Latham, our Senior Vice President and Chief Financial Officer.

We're pleased that we, again, produced solid financial results during the third quarter and remain on track to produce record levels of gross profit and adjusted EBITDA during 2019. We are and will continue to focus on managing the business to grow gross profit dollars, which is the key metric that we use to gauge our success. Based on our gross profit results, we had record performance in the third quarter. Gross profit was up 7% for the quarter and year-to-date gross profit has increased 13%. Our pipeline of opportunities continues to grow with existing as well as new customers. And I'm as excited as ever about the trajectory of the business and the strength of our customer relationships.

Before I get into more detail, I'm going to turn the call over to Laurie to review the financials.

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [4]

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Thank you, Ray, and good afternoon to everyone on the call.

Third quarter revenue was $23.9 million, a decrease of 7.7% compared with the third quarter last year. Year-to-date, revenue was $76 million, a decrease of 3.2% year-over-year. The decrease was primarily due to our strategic focus to transition away from lower value-added services, which resulted in exiting low-margin service business with a customer in late 2018, partially offset by increased services of generally higher-value solutions from both our continuing and new customer base. I will also note that these factors are likely to continue to affect our revenue comparisons in the fourth quarter. However, we continue to expect gross profit to show year-over-year growth during the fourth quarter and reflect greater than 10% growth for the year.

Moving down the income statement. As Ray indicated, third quarter gross profit was a record, increasing 6.7% year-over-year to $4.8 million. Year-to-date, gross profit was $14.1 million, a 13% growth year-over-year. The improvement in gross profit was due to the combination of increased services from both our continuing and new customer base and lower cost of certain subcontracted services. Gross margin for the third quarter was 19.9% of revenue, a quarterly record, and a 270 basis point improvement compared with the third quarter last year. The improvement in gross margin over the last several quarters was primarily due to a shift in the service mix in our business and lower cost of certain subcontracted services.

Our gross margin percentage has been above our targeted range for the last several quarters. And we believe that it should remain elevated for the remainder of the year due to service mix changes. Also, as we have said previously, gross margin can vary from quarter to quarter depending on our revenue mix and other factors. Going forward, we expect to grow gross profit in excess of 10% and generate gross margins within our targeted range of the mid-teens.

Third quarter operating expenses decreased 9.8% year-over-year to $4.6 million. The decrease in third quarter operating expenses primarily related to lower depreciation and amortization of $1.4 million and lower bad debt expense of $846,000, which was partially offset by increase in labor expenses and, to a lesser extent, increased advertising and trade show expenses.

The decrease in depreciation and amortization was related to certain intangible assets that were fully amortized as of July 2018. The decrease in bad debt expense related to a charge we took in the third quarter last year to write-off receivables from a customer that had entered bankruptcy.

Year-to-date, operating expenses decreased 6.8% to $13.6 million. Going forward, we expect operating expenses to grow at about half the rate of our gross profit dollar growth rate.

Interest expense during the third quarter and year-to-date was relatively unchanged versus prior year comparisons. For third quarter, interest expense was $119,000 versus $106,000 last year. And year-to-date, interest expense was $344,000 versus $336,000 last year.

Net income per basic and diluted share was breakeven for the third quarter of 2019 compared with a net loss per basic and diluted share of $0.04 for the third quarter of 2018. Year-to-date net loss per share improved from a loss of $0.17 last year to $0.01 loss per share this year, which included $248,000 or $0.02 per share of expenses related to April 2019 selling stockholder transaction.

Our adjusted EBITDA for the third quarter increased 27.5% to $860,000 versus last year. Year-to-date adjusted EBITDA increased 58.2% to $2.5 million. The improvement in adjusted EBITDA reflects the operating leverage in our business model, which should continue to allow growth in adjusted EBITDA and profitability growing at a faster pace than gross profit as we move forward.

Turning to the balance sheet. Our cash balance was $2.1 million at the end of the third quarter, which was relatively unchanged from the beginning of the year and an increase of approximately $1 million compared with the third quarter of 2018. We had $4.5 million drawn on our $20 million credit facility as of September 30, 2019.

So at this time, I'll call -- I'll turn the call back over to Ray who will discuss our initiatives and the outlook.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [5]

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Thank you, Laurie. Before I review the progress of our strategies, I want to take a minute to review how our business has transformed over the last few years. And how I believe more than ever that we are well positioned to become a major player, helping large enterprises optimize their waste streams, divert waste from landfills, and ultimately improve their sustainability.

First, we're targeting the right business. Several years ago, much of our revenue is derived from simple non-value-add service, which put us in a position of competing on a one-dimensional basis price. Although this generated a significant amount of revenue, it was not a good business in terms of margin or returns. Instead, we now compete based on national scale, broad scope of service offerings, data reporting analytic capabilities and excellent customer service. These attributes are very valuable to our customers. Competing based on these factors allows us to create a stronger customer relationship and earn a sustained higher margin.

Second, the transformation of our business is clearly evident in the growth of gross profit dollars and the change in our gross margin profile. Over the last 3 years, gross profit dollars have grown in excess of 9% compounded annually. Gross margin has more than doubled from around 8% 3 years ago to consistently in the mid-teens for the last 8 quarters. Additionally, we have substantially changed our ownership base and our corporate governance. In April of this year, about 40% of our shareholder base changed hands. Shares that were once owned by 3 investors are now owned by more than a dozen. We believe this is a long-term positive implication for our liquidity and our valuation.

In this past year, we've also adopted shareholder-friendly policies that illustrate how the board and management are committed to aligning with shareholder interest. These policies include stock ownership guidelines and a derivative trading policy.

I, next, want to talk about how we're positioned for growth. I'll first talk about reasons customers are choosing us, and how this really speaks to the core value -- to our core value proposition. The reasons include the following:

We have scale. By aggregating the volumes from our customers, we simply have greater buying power.

We have a broad scope of services. We make things simpler with a single turnkey solution to handle all of our customers' waste streams.

We are experts. We know what alternatives to landfill are available. We help customers optimize waste streams to meet sustainability goals. Many waste streams also have increasing regulatory requirements. We help customers stay in compliance and avoid costly fines and/or damage to the reputation.

We provide comprehensive data reporting and analytics. Our technology gives customers important insight into their operations and provides them a common data set to be used in external and internal sustainability and operational reporting.

We have an intense customer focus. We work closely with our customers to continually support their efforts and find solutions for them. And by doing so, we enjoy great customer loyalty and opportunities to expand with them.

All of these attributes are helping us win the business with existing and new customers who are choosing to trust us with the management of their waste streams.

So the question becomes, how do we compete with large asset-heavy service providers, many of which have far greater resources than we do? The key reason we can compete and win is that we are more aligned with our customers' financial and sustainability goals. Our larger competitors own assets like landfills, they're financially motivated to drive waste volume to their landfill operations. We find that clients are often overserviced to drive more volume to landfills with little incentive by our competitors to reduce their costs or divert the waste.

And now for an update on our recent wins in the restaurant vertical. Buffalo Wild Wings is up and running in the third quarter, and we're doing a great job there. We've also secured another restaurant that we mentioned on last quarter's call. This is a quick service restaurant that has approximately 220 locations nationwide. We're on schedule to onboard this customer by December of this year. Our recent success in the restaurant vertical has raised our profile within the sector.

I also want to comment about Matt Lewis, our new VP of Sales, Senior VP of Sales, that we announced last week. We wanted a sales leader that has significant experience in our targeted end markets. And Matt has exactly that. He's a great addition to Quest. He brings decades of experience in multiple end markets, including 20 years with waste management. He has a broad knowledge of the services that we provide and can hit the ground running. He has extensive experience in selling to large industrial manufacturing companies. These are 2 of the end markets that we are focused on. In addition to his sales leadership experience, he brings an operational knowledge that will help our customers with their complex waste streams, many of which have stringent regulatory requirements.

Before I open the call to questions, I want to review our outlook for continued growth in gross profit and adjusted EBITDA.

Regarding our outlook, with solid year-to-date performance, we are positioned to continue to drive 10% plus in gross profit dollars for 2019 and expect that to continue in the future. We expect incremental gross profit dollar contribution will be leveraged over our fixed cost and expect a higher growth rate in operating profit and adjusted EBITDA. We're excited to welcome our new sales leader with his great reputation and proven track record. We're excited about our prospects, outlook and business opportunities going forward. We believe our stronger foundation allows for a sustainable business that will consistently grow our revenue, profitability and, more importantly, long-term shareholder value. I look forward to keeping you updated on our progress.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Gerry Sweeney, Roth Capital.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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Earlier this year, you also talked about one of your larger industrial clients, just seeing some headwinds probably related to some trade-related issues. Is that client or clients still seeing those headwinds? Or have they bottomed out? Any specifics you could give us on that front?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [3]

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It's tough to give specifics, Gerry, but yes, the client is still facing headwinds. Luckily, overall, the way our business is structured and the revenue streams from that client base, we're actually growing our gross profit dollars with them. So that's obviously, as we mentioned earlier, key to us. But on just pure volume relative to one of their key waste streams, they're still facing the headwinds.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Got it. So I mean, is it fair to say, thinking about a little bit here, but that industrial client or even with your other clients, as we see a little bit of reduction -- some reduction in revenue that could be the continued optimization or shifting of some of those services. So while revenue is going down, your -- that is actually just third-party costs that you will incur, but your gross profit dollars are increasing. So you're actually growing sort of your most internal revenue per se. I know that's a little wordy, but...

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [5]

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Yes. That's good insight, Gerry. Absolutely. I mean, that's one area we talk about gross profit dollars. There's our focus. There's these -- some of these other variables that will impact revenue. But we obviously are continuing to move forward. And there's a lot of initiatives we have. In this whole conversation, we're seen to be talking about one particular client, but it goes beyond that. As we're focused on -- yes, and I think that's what you're alluding to, broader than that. As we look across our -- we're problem solvers and we're optimizers for our clients. And in doing that, sometimes, it's got a negative impact on top line. But obviously, based on our consistent quarterly results, it's had a positive impact on our gross profit, along with helping our clients manage their costs better.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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Yes. And we've actually spoken a little bit about this, right? So the optimization is great, it works through getting deeper into existing customers and solving additional problems and things like that. But obviously, we need to onboard new customers to sort of say that -- the stair-step in growth or really like a larger base that you go after. How does the actual pipeline of RFQs or just interest level look today versus even 6 months ago? If you can give any?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [7]

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That's a great question. And the pipeline itself -- so the pipeline looks good. I mean, one of the challenges that we've had, and Matt is helping us, and actually, I've been working on the last several months as well, is really making sure that the clients we had in there and the type of business that we're going after fits our profile and our profile is defined by not just pure price-only trash-type opportunities as we discussed numerous times. And I would say the pipeline looks considerably cleaner now and is more reflective of what we want it to be as far as targets go.

And so the point is that we've got good stuff in there. Well, what needs to be done is having to accelerate it, move it left to right more quickly. I think we all want that and see that. And that's where our focus has been this last quarter. And Matt has got an accomplished track record in doing that. I'm really thankful that he's here to help us. So I feel pretty optimistic. The bottom line is -- to answer to your question is, we've got a lot of great prospects in our pipeline. And I believe we have the talent to move it forward as quickly as possible at this point.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [8]

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Got it. And then just one more quick question, I'll turn back to queue. Buffalo Wild Wings, was that fully in 3Q, if my memory says correct, I think it was the full impact. And then Part B, I guess, I lied, 2 questions. The 220 quick-serve restaurants, will they be fully onboarded by December? Or does that start December and sort of grow from there?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [9]

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Yes. First question on Buffalo Wild Wings -- sorry, the first Part 1a. Was that your -- Part 1a. Yes, we had it on board through the whole quarter. It's been going great. It's obviously taking a lot of -- the implementation has gone really well. But it's always -- it's a lot of locations. There's a lot of work, and it's gone well. So we have full impact in Q4. The new -- with the 220-location restaurant should kick off beginning of December. So we won't have any revenue on that until the back part of the fourth quarter.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [10]

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Okay, got it. Perfect. And obviously, great execution. You can see it on the OpEx costs and the margins. So definitely congratulations on that front.

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Operator [11]

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We'll take the next question today from Sameer Joshi, H.C. Wainwright.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [12]

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In one of your presentations on your website, you mentioned an annual growth target of 10% to 15%. Does that relate to the same gross profit growth? Or does it relate to your top line growth?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [13]

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We're speaking to gross profit dollars, primarily based on the -- everything we've talked about. And we've been achieving that and plan on continuing to do that.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [14]

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Okay. So sequentially, we see this drop in revenues, and we do -- you didn't speak to that.

Hello? I'm hearing some background noise.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [15]

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I'm sorry. Well, I hear you. So go ahead, Sameer.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [16]

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So I understand it is probably because of this industrial -- large industrial client facing headwinds, but then you are also adding the restaurant services business. And -- so how do we reconcile that drop in revenue versus growth in verticals?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [17]

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Are you speaking about sequential or year-over-year?

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [18]

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Sequential.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [19]

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Sequential, yes.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [20]

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Okay. Well, it's a pretty significant impact on the -- pretty much pure revenue that we had on that larger industrial segment that we talked about. And I mean I guess the impact is -- that's why the gross profit dollars grew is the -- please go ahead, Laurie, if you've got the note.

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [21]

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Yes. So in other words, Sameer, sequentially, the decrease is primarily that industrial client is affected by just one of the waste streams we do, which is one of those lower-margin ones. And -- but that decline was offset by increased services, primarily from our new customer. And we've also had some additional services that we're doing with our existing customer base. So the net effect was a decline, but the primary reduction had to do with that industrial client.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [22]

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So is this -- is one of the services, which is high margin related to this comprehensive data reporting and analytics? And are you seeing more attach rate, so to speak, for that service with your existing or new contract?

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [23]

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So Sameer, our technology in the portal that we provide, if I'm getting your question correctly, we don't charge separately for that. But we do have customers who continue to utilize that, and it's certainly a driver for people to expand services and to sign up with us. Did we hear your question correctly?

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [24]

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Yes. I mean I was under the impression that those services, that add-on services that you charge extra dollars for, which are leading to the rise in gross profits.

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [25]

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Yes. Yes, we do. So let's correct that a minute. We do increase and have more revenue and more margins as we increase the number of services and types of services we do with our customer.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [26]

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So moving forward to 2020, should we see revenues bounce back? Or are you still going to talk in terms of gross profit dollars growing at 10% to 10-plus percent year-over-year going forward as well?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [27]

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Yes. As we mentioned earlier, Sameer, we've got our finger on gross profit dollars, and that's what's feeding a double-digit growth and that's feeding our forecasted or projected anticipated EBITDA growth along with the -- obviously, the scalability of business to impact EBITDA growth. So that's what we're talking about. We haven't really spoken to revenue. There's so many inconsistencies in there. I mean, and as you look at it, if you look at the continuing increase in gross profit dollars with the erratic nature of the top line, I think, it makes all the sense to world for the company and from an investment perspective to utilize that metric.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [28]

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Okay. And just one last one. On the adjusted EBITDA front, is your target still going to be the 4% to 6% for the next year? Or based on the increase in gross profit dollars, do you see adjusted EBITDA also going up -- targeted adjusted EBITDA going up?

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [29]

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So what we had talked about was getting to a 4% to 6% EBITDA percentage in the next 3 to 4 years. And yes, we're making great progress towards that, but that is what our guidance was on that, that we are looking at accomplishing that over a 3- to 5-year time period.

And we're already at our -- and Sameer, we're already at, obviously, our lower level there. So we're looking forward to continue to grow that as we grow the gross margin. And we talked about leverage in our business, and that will allow us to continue to grow that percentage, both for the net income and for the adjusted EBITDA.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [30]

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Yes. In the third quarter, you're already at 3.6%. So -- and that's why I was thinking the 4% to 6% could be closer than the 3- to 5-year horizon.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [31]

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Well, it definitely can be, don't misunderstand. We're trying to make sure that we're reasonable in our expectation. But I mean the same thing on our gross margin, I mean, there are some metrics that we've exceeded, but there's a lot of business cycles out there that we manage through. And we don't want to create an expectation that could be an issue.

But yes, to your point, Sameer, we're at 3.6% now. So it doesn't take a lot of imagination envisioning what it takes to get to 4% to 6%.

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Operator [32]

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(Operator Instructions) Up next is Nelson Obus, Wynnefield Capital.

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Nelson Jay Obus, Wynnefield Capital, Inc. - President, CIO & Portfolio Manager [33]

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Ray, another take on the pipeline question to attack it from a higher strategic level. Like, if you were to look out 3 years, okay, what -- where would you expect the major changes to be in the current industrial verticals that you serve now versus where you expect to be since we're in the value-added realm of new business? In other words, how would that industrial mix shift around, if you were to cast your mind out 3 years?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [34]

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Yes, it's a great question, Nelson, and I could tell you where my mind was, and now with Matt on board, it gives me a much higher level of confidence. As you know, you and I've talked about in the past, we've mentioned on the calls, the manufacturing industrial vertical just has so many opportunities, and it's such a better fit for us than some of that previous business that caused us some issues. And Matt's experience is over 20 years of actually focused on entirely that for our former competitor in their waste management. And as a matter of fact, Matt's title was VP of Manufacturing and Industrial Sales. So when I look at -- to answer your question, I look out 3 years plus, I expect to see, in my mind, a much greater mix inside of our pipeline of accounts that fit that profile. I know that our ability to serve that segment is good based on our current success. Our ability maybe to accelerate that into the manufacturing segment, our sales techniques and that maybe haven't -- they haven't yielded nearly as quickly. So I know we have a good product to sell, and I feel much better about our ability to market it to the right folks, Nelson. So I see a much heavier focus 3 years out when you look at our pipeline of having those type of clients in it. I really do.

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Nelson Jay Obus, Wynnefield Capital, Inc. - President, CIO & Portfolio Manager [35]

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So the other conversation we've had is the whole idea that if somehow the company were to succeed as a facilitator of, say, one of these industrial companies getting high ESG status. Certainly, that would drive the multiple of this company. Is that a realistic goal? Is that in the mix when you approach these people? Or are they simply eager to get the job done without bragging about it? Or is bragging about it more necessary and give us an opportunity we didn't have a couple of years ago? I shouldn't say bragging, I should say, validating, okay.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [36]

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My observation is -- yes, validating, publishing, tracking, putting it out there. I would say a couple of years ago, it was more about getting the job done. But just maybe 3 or 4 years ago, it's increasingly more and more important to these companies that they have credible reporting on their ESG reporting. And credible, obviously goes back to collecting the data in a timely, accurate manner and giving it back to them in a way that they can divulge it appropriately.

But we're hearing that a lot, Nelson. I mean, we just had a meeting recently with another large corporate manufacturer brand that's looking for answers. And they're almost predominantly around diversion and things that's going to help their environmental scores. And it's given that on top of that, they also want to save money. That's -- I want to leave that out there. It's always part of the equation. But it's becoming more and more prominent, Nelson, than the -- how do I do a better job diverting tonnage and improving my EMI, ESG scores.

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [37]

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Looking at our customer base too, we're seeing that. So we have continued more opportunities in our current customer base, and that's really changed also, Nelson, over the last 3 years. So we see continued growth for opportunities there too.

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Nelson Jay Obus, Wynnefield Capital, Inc. - President, CIO & Portfolio Manager [38]

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Yes. Now if we actually prove this out, I mean, would we do this ourselves? Or would we bring in, I don't know what you'd call it, a PR firm or something to fashion an end product that would be available to the public?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [39]

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I think we can do that.

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Nelson Jay Obus, Wynnefield Capital, Inc. - President, CIO & Portfolio Manager [40]

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Or if that capability exists within the companies you're talking to?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [41]

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We're already doing it for ourselves as far as the tracking and the data and the analytics. And the companies we're talking to are typically Fortune 500 companies. So their internal capabilities to package that exist already. So I don't see the need for now.

Yes, smaller firms would definitely need that outside piece to be able to structure that. But the larger firms we deal with, typically, would not.

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Nelson Jay Obus, Wynnefield Capital, Inc. - President, CIO & Portfolio Manager [42]

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Good enough. Good luck there. That's high multiple stuff.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [43]

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We're moving for it. We're going for it.

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Operator [44]

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We'll take the next question from Jamie DeYoung Goudy Park Capital.

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James W Deyoung, Goudy Park Management, Llc - Managing Member [45]

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Just want to follow up on the pipeline. Can you just remind me, on these large restaurant wins that you've had and others that are in the pipeline, what are you talking about in terms of kind of an annual revenue contribution for those types of customers?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [46]

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Yes, the closest we've got, Jamie, on that is, I think, we mentioned before, and this is consistent. It's in the millions. We obviously are not in a position to put individual clients' revenue out there, but to give -- to be fair, give you a scope, it's in the multimillions, each one of these typically.

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James W Deyoung, Goudy Park Management, Llc - Managing Member [47]

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Okay. And then where are we would you say in terms of kind of revenue rationalization culling the low-margin revenue customers that you've had historically? Are we 3 quarters of the way through that? Or are we more or less than that in terms of where we are on that component of the customer base that's been shrinking?

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [48]

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Yes. It's a great question, Jamie. And there's really -- I want to make sure I'm clear, there's 2 parts on that. The actual activity of ending a relationship, however we do it, is the first step. And the second step is you've got 1 year to wait where the history isn't in you. And so I would tell you that we're 100% done with targeting noncontributing type of agreements. We're not 100% done yet. I think we anticipate lowering it by the end of Q4.

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Laurie L. Latham, Quest Resource Holding Corporation - CFO, Senior VP & Secretary [49]

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And after Q4, then our year-over-year comparisons will be cleaner without that type of activity.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [50]

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Right. I wanted to give you that color, Jamie, because it's important to understand when it rolls off, but the actual activity of targeting clients that aren't -- don't have a good return, that has been completed. As a matter of fact, with this rollover at the end of Q4, that pretty much completes the history associated with it as well.

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James W Deyoung, Goudy Park Management, Llc - Managing Member [51]

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Okay. So what I'm getting at here is, in terms of what's the kind of the bottom in terms of revenue stabilization level for this company? Is it $95 million, $100 million because you've made this improvement on the gross profit, on the cost cutting. So getting to $4 million in EBITDA is very visible. But then moving up to $6 million, trying to get a better sense of, is -- that takes several years if we don't have revenue growth. And if you have revenue growth, we get there a lot faster.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [52]

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Absolutely. It's a key ingredient. And it's a multi-step process. So to answer your question, the term Laurie had used, I think, in the past, is, "we look at our transition, we're at the bottom of the bowl," is that the way you commented. So to answer your question, as far as rationalization, where that number is, I think, it's where we are, because I don't see any more reduction, and I see every effort and every initiative internally about bringing on new clients. And with those new clients comes new revenue. And I want to recognize the fact that even though we've spoken about gross profit dollars predominantly, we understand that one of the best ways to increase gross profit dollars at this point where we are, is to add new clients and the associated gross profit dollars with it. So we've got to grow in then there. And that's one of the reasons we made the new hire. And we really feel like we've done a lot of work identifying and the segments where we can achieve that most optimal gross profit dollar per revenue dollar, our pennies per revenue dollar, however you want to look at. So yes, I'd say we're at the bottom. Our plan is to move north on both of those metrics.

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James W Deyoung, Goudy Park Management, Llc - Managing Member [53]

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Okay. So -- and you must have some confidence in that or you wouldn't have made the significant sales hire you did at this time, you could have waited longer. So safe to say that unless we hit a real recession that impacts some of these retail and industrial customers, we should start to see revenue growth from this level.

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S. Ray Hatch, Quest Resource Holding Corporation - President, CEO & Director [54]

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Yes. I think that's exactly what we should see. And Jamie, I think you and I've talked about this in the past. One of the things I'm happy about, about the -- what the makeup of our revenue and our customer base today, it's a lot more diversified than it used to be as far as just like the retail sector being just a primary driver of almost all of our revenue. We have a lot of our revenue coming from the heavy industrial segment. We still have a pretty good bit of retail revenue. And then we have a lot coming from the automotive aftermarket space, as well. So it's hard for -- it's really hard for one economics to now meet -- kind of hit all those. So we feel a lot better about where we are today in that regard. So I agree with your point that you just made.

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Operator [55]

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And everyone, at this time, there are no further questions. That does conclude our conference for today. Thank you all for your participation, and you may now disconnect.