Q4 2023 Quest Resource Holding Corp Earnings Call
Participants
Dave Mossberg; IR; Quest Resource Holding Corp
Ray Hatch; Chief Executive Officer; Quest Resource Holding Corp
Brett Johnston; Chief Financial Officer, Senior Vice President; Quest Resource Holding Corp
Aaron Spychalla; Analyst; Craig-Hallum Capital Group, LLC
Gerry Sweeney; Analyst; Roth Capital Partners
Greg Kitt; Analyst; Pinnacle Family Office
George Melas; Analyst; MKH Management LLC
Nelson Obus; Analyst; Wynnefield Capital, Inc.
Presentation
Operator
Thank you for standing by. This is the conference operator and welcome to the Quest Resource Holding Corp. Fourth Quarter and Full Year 2023 earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions to join the question queue. You may press star then one on your telephone keypad. Should you need assistance during the conference call you may signal an operator by pressing star and zero. I would now like to turn the conference over to Dave Mossberg, Investor Relations representative. Please go ahead.
Dave Mossberg
Thank you, Carl, 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 Securities and Exchange Commission. 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. Data and information are based on Quest's estimates, independent publications, government publications and reports by market research firms and other sources of those Quest believes these sources are reliable and the data and other information are accurate. We caution that Quest is not independent independently verified the reliability of the sources of or the accuracy of this information.
Certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes that the presentation of these non-GAAP financial measures is useful to investors, understanding the assess 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 Ray Hatch, President and CEO, executive officers.
Ray Hatch
Thank you, Dave, and thank you for those joining for. Thank you for those joining us on today's call.
We made considerable progress at Quest in 2023 and have begun to see the results of the significant investments we've made in the business, both in sales and operations.
The actions we've taken to date adding to our sales team broadening our efforts in a number of verticals, investing in our technology and processes, improving our ability to serve clients, improving our ability to scale the business and increased operating profits. All days had positioned us incredibly well given our robust pipeline customer focus efficiency program at Flotek implantation and strong competitive position. We expect this momentum to continue into 2024 simply our growth focus strategies are working. We are extremely encouraged by what we're seeing in the business, both on the top and the bottom line.
During the year, we made strides across nearly all facets of our business.
We experienced notable customer renewals, growing quality and volume of opportunities in our pipeline and new business wins as well as meaningful operational efficiency improvements.
We've completed the integration of acquired businesses, including RWS. fully incorporating them into the Quest platform.
As we mentioned previously, we expect that efficiency initiatives related to RWS. will deliver $1.7 million in annual cost savings and expect to generate additional operating efficiencies and expand our margins in 2024.
I also want to point out that Glenn Culpepper, our current Quest director and former Chief Financial Officer of Republic Services, will join the audit committee as Chairman. Glenn will provide new leadership and perspective within the critical function and we're grateful. He's assuming this new role last quarter. I said I'm more excited than ever about the foundation, the underlying strength of our business.
This statement was more bullish than any other have made in recent years, just a few months later, evidence to this CGM has borne out.
We've renewed two of our largest accounts. We've signed six new customers in 2024 alone.
And as such, I'm even more confident in our outlook and look forward to sharing more details at the financial review, I'll turn the call over to our CFO, Brett Johnston.
Brett Johnston
Thanks, Ray, and good afternoon, everyone. We had strong fundamental performance during the fourth quarter with year-over-year improvement in revenue, gross profit dollars and, profitability, revenue increased 11.4% during the fourth quarter to $69.3 million. The revenue increase was primarily related to strong demand for recyclables and nonrecyclable Materials Services from both new and existing customers. The revenue increase was partially offset by lower commodity prices realized from certain recyclable materials, while prices for recyclable materials did somewhat offset growth in revenue during the fourth quarter it did not affect gross profit dollars. Our customer agreements produce consistent gross profit dollars from recyclable materials based on volumes that are not tied to commodity price fluctuations for those of you who may be new to our story. This is the reason we use gross profit dollars as a key metric to measure financial performance.
Moving on to gross profit dollar comparisons during the fourth quarter, we reported $11.5 million of gross profit dollars, a 6.9% increase year over year. Fourth quarter gross profit includes the effect of a $1.2 million noncash adjustment to the cost of revenue related to the RWS. business during prior year periods in the process of reconciling RWS accounts payable for periods prior to 2023, we found some items that RWS that were not properly expensed in 2021 and 2022, while the integration of RWS had been slower than we would have liked, given the systems that we inherited in the volume of invoices that needed to be worked through. It is important to keep in mind that substantially all of the adjustments made were related to 2022 and earlier, and the acquisitions will be integrated quickly to avoid this in the future.
I also want to point out that with the integration of RWS and all other acquisitions complete all our clients, all all our clients acquired organically or through acquisitions are running on the same platform with the same processes and controls. Additionally, through our work to become an accelerated filer at the end of 2023, we had an outside firm test and evaluate our controls and processes. We are confident that our systems that handle tens of thousands of transactions across hundreds of vendors can process all our current and growing business. We have had we have not had these types of adjustments in the past with our core operations, excluding adjustments, we had strong growth in gross profit dollars year over year. It was a really strong performance in the fourth quarter and a good end of the year.
Looking to the first quarter in 2024, we are encouraged by the record number of new customer wins Ray mentioned earlier and expect strong year-over-year growth and sequential growth in gross profit dollars and expect that to continue through the year.
Moving on to SG&A expenses, which were $9.4 million during the fourth quarter, down from $9.8 million during the same period last year and in line with our expectations. Looking forward, we expect lower integration costs and to gain efficiencies from the best investments we made in our platform. We plan to continue to grow the bottom line, continue to pay down debt and reinvest savings into growth and efficiency initiatives. Continuing to increase our ability to bring value to our clients. As a result, we expect SG&A expenses will be about $10 million in the first quarter as efficient as efficiency gains are offset by expenses to support new growth and other initiatives. We expect margins to continue to expand from efficiencies and to deliver improving operating leverage in the quarters to come.
During the fourth quarter, depreciation and amortization was $2.5 million, which was relatively flat compared with the prior year.
Moving on to a review of the cash flow and balance sheet. Our liquidity is in good shape and this high interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management, carrying less cash and minimizing borrowings on the line of credit as part of our working capital management and in light of increasing interest rates, we paid $7 million in voluntary prepayments toward our term debt in 2023 utilizing excess cash. Our cash balance was $324,000 at the end of the fourth quarter, and we had $13.2 million drawn on our $25 million operating borrowing line. This compares to $12.2 million at the beginning of the year.
Our adjusted EBITDA to senior debt leverage ratio has dropped from 4.3 times in Q4 2022 to 3.6 times in Q4 2023, excluding adjustments. To that end to further strengthen Quest long-term financial position, Quest's Board of Directors has formed a committee that, along with management will evaluate alternative long term debt structures to ensure the company can lower its cost of capital and preserve its ability to maximize growth. The committee is in the process of retaining an independent financial adviser to assist in the process. We look forward to discussing this with you over the course of the year. For the year, we used $1.3 million to fund operations, which was primarily to fund working capital demands at the end of this year. During the fourth quarter we had slow payments from several of our largest customers, resulting in a $7.8 million increase in accounts receivable. This is a temporary increase in AR, and it is not uncommon for our largest customers to slow pay towards the end of the year, which was the case at the end of 2023 A., our DSOs were 75 days at the end of the quarter, but we expect they will return to their average in the low 60s that we have experienced during the last several years.
At the end of the year, we had $67.8 million in notes payable versus $74.9 million at the beginning of the year. The reduction reflects normal principal payments and voluntary term loan prepayments, partially offset by an increase in borrowing on our asset base line with PNC. Through our cash management efforts and the reduction in borrowings, we continue to expect to reduce interest expense by more than $1 million on an annualized basis.
At this time, I'll turn the call back to Ray.
Ray Hatch
Thank you, Brett. I have a lot of positive highlights to share with you today. Most exciting of which is the momentum of our organic growth initiatives. So I'll start off there. The pace of signing new business coming out of the end of the year has picked up significantly, and we have continued to gain momentum in the beginning of 2024. We have more new client wins to talk about on this call than ever in recent history, we're seeing the results of the hard work by many of the team over the last two years to develop our go-to-market sales efforts. We're producing record customer wins and meaningfully expanding existing client relationships at an accelerated pace. We've recorded six new client wins, three of our seven digit and another one is an eight digit win. In addition, we've expanded to smaller customers of seven digits and renewed and expanded services with two of our largest customers. The rate of this new customer growth is unprecedented for Quest, and we're excited for the future.
Dave, your win is with a Fortune 200 company. That's one of the largest food distributors in the US. This is a new end market vertical for us in the food sector, one that I know well from my food distribution days, we believe we'll be able to say more about this over the next few weeks. We will begin servicing this client during the second quarter and anticipate they'll ramp quickly over a three month period. Previously. This client was handling their solid waste through a vertically integrated national provider. This was a competitive process and we won it based on our reputation, cost effectiveness, aligned commitment to diverting greater portion of waste from the landfills and the ability for us to provide added visibility from our data portal and Platform three seven-figure wins were with one & one industrial company and two large retailers, all three of these clients are large companies with national footprints. We began servicing all of them at the beginning of the second quarter, and the opportunity exists to significantly expand the lines of service with all three of these customers with one of the retailers in the industrial cloud, we have the opportunity to grow these to eight figures in the annual revenue over time. In addition, we had two smaller wins, including one of the new automotive service client with our initial engagement will begin servicing. It doesn't have the look of their several hundred locations and are actively working to secure their entire book.
In addition to closing several deals in recent months, we've continued to see a noticeable uptick in not only the number, but the size of opportunities in our pipeline with excess success we're having with new client wins, we plan to accelerate our investment in organic growth initiatives, including investments in marketing and sales during 2024. Our last call, we spoke about the new sales leadership and investments in sales operations that will allow our sales folks to spend more time on closing and less time on and more administrative functions such as proposals and lead generation. In addition, we're shortening the sales cycle by simplifying our contracts and using our new sourcing tool to turnaround proposals more quickly. Our sourcing tool allows our staff to look across our entire footprint vendors for qualification of pricing data. The tool reduces the time it takes for our staff to find optimal solutions from days to minutes. It is investments and sales are helping us grow our pipeline, shorten the sales cycle and create a better yield and converting proposals into agreements going forward.
Regarding client renewals, we have recently signed multi-year renewals and expanded our engagement with two of our largest clients. It says a lot about our value add when clients awarded additional business. It comes as a direct result of our focus on long-term strategic relationships and not having relationships that are transactional in nature. Importantly, our success is also driven by our people we have an outstanding team of operations, folks that go above and beyond to help our clients and cost effectively meet or exceed their sustainability goals. And I really want to recognize them for their hard work because of our strategic client relationship focus and our great people, the average engagement of our top 20 clients in nine years, our land-and-expand strategy has consistently delivered solid growth from our existing client base in the last five years. And we feel there are ample opportunities for continued growth from our existing clients for multiple years to come I will now review overview the investments we're making in technology over the years. We've built a technology platform that will be able to scale to the size of a much larger enterprise. That technology platform has been a key deciding factor for several competitive wins and has helped us maintain enduring client relationships due to the incremental value that we provide in recent years, we've stepped up investments in our technology platforms so that we can stay ahead and continuously improve client value, efficiency and scalability. We're actively introducing additional technology improvements in 2024 these improvements will enable us to further automate lower costs to process invoices, provide major enhancements to our ability to scale and to expand our margins.
A good example is a new vendor source until that I discussed earlier, which is helping us accelerate our quoting and onboarding process. And in addition, we're rolling out a technology enhancement that will allow us to further automate the processing of vendor invoices and achieve significant cost savings and margin improvements. Our technology investments are aimed at improving customer experience, increasing efficiency and lowering our cost to serve a great example is vendor management. We've added more than 400 new vendors to our platform while adding seven new service lines, all of which have great revenue potential across our customer base. Our technology is enabling us to do this faster, more efficiently and at a lower cost. Over the past year, we've lost our vendor portal, which allows an automated self-service type of completion documentation and onboarding for vendor. This is saving hours of work, increasing accuracy and lowering our costs.
Before I move on to our outlook, let me make a brief comment about the macro environment and our views on inflation and broader economic uncertainty during the fourth quarter and in recent months, we continued to see stable activity levels across our end markets. We manage cost pressures and fluctuation in the price of recycled materials as well. The waste business is generally resistant recession and our clients continue to generate waste during the top and the bottom of the cycle. We also have compelling and differentiated value propositions, which creates strong client relationships that endure during periods of economic weakness.
Regarding our outlook, I want to emphasize the conviction on our trajectory and on the overall outlook for the Company. We've made tremendous progress during the last several years and are as confident as ever about our outlook for continued double-digit growth for 2024 and beyond. I feel very good about the organic growth we have in front of us, pressure to improve sustainability, increasing regulation, increasing cost to landfills continue a lower bar for adoption of our recycling services. We have multiple sources of organic growth from expanding with our existing clients, ramping up recent wins and growing the pipeline of new business. I also want to reiterate that we have a large opportunity to grow gross profit dollar growth on the cost side by optimizing the business we have in hand as we bring revenue on our platform, we've proven our ability to optimize cost of services through vendor relations and procurement management that drives our continued growth in gross profit dollars similarly, we have multiple ways of improving efficiency by utilizing the technology investments we've made over the last several years with the integration of RWS. complete, it has transitioned from being a distraction to a value added part of our overall business on a cleanup adjustments for our WAF have been very frustrating. We're now running all of our business on a common platform. Through our integration efforts and other actions, we expect to recognize approximately $1.7 million in annualized savings from RBS, a portion of which began during the fourth quarter of 23. We also expect additional savings from other initiatives as well.
Finally, we have reduced our leverage will continue to pay down debt and plan to lower our cost of capital while preserving our ability to grow with fiscal 24 now underway, we look ahead with great confidence. The work we've done is centered on building a consistent and sustainable business focused on providing valued services to our clients. The foundation is set for continued success and to build value for our shareholders. We expect our momentum to carry through this year and beyond. I couldn't be more excited about what's to come. I look forward to keeping you updated on our progress. We'd now like the operator to provide instructions on how listeners can queue up for questions.
Operator?
Question and Answer Session
Operator
(Operator Instructions) Aaron Spychalla, Craig-Hallum.
Aaron Spychalla
Yes, good afternoon, Ray and Brett. Thanks for taking the questions.
Ray Hatch
Hi, Aaron.
Aaron Spychalla
So maybe first, I think thanks for the color on the wins and definitely good to see. Can you just talk about are you starting to see improvement in pipeline conversion or is it still kind of status quo just given the macro and then maybe not customer by customer, but it sounds like there's there's still some good potential for land and expand there.
And then just also on the onboarding times, you kind of mentioned a handful of months. And can you just kind of talk about where that stands today and some of the efforts there to kind of shorten those onboarding times?
Ray Hatch
Yes. I'll go to the question about the pipeline.
We're really focused on growing that with quality clients or prospects. I guess at that point. And it's really it's accelerated and has continued to accelerate, really want to congratulate the sales team for being very aggressive and getting the message out and getting them. And so as far as conversion rate goes up, it's obviously picked up there and has the number of signed deals that we have. And just in the last several months have exceeded anything we've done for several years, frankly, as far as new clients go. So we're excited about that.
So I guess you can say the pipeline is moving more quickly and is bringing us really the type of clients were looking for. And your second comment, I believe, is about land and expand all of these clients, some of them with huge amounts of upside. These are these are relatively large clients with them that is generating a lot of waste and have a lot of need for what Quest is bringing on. So I'm really excited about the ability to continue to ramp those things up and mine continuous new revenue and profit, profitable exercises to those new clients we're bringing on board and the ones that we already have on and what was that you had at yet?
Another part there and I took out about ramp-up time, I believe and yes, and some of it depends on the type of client, Aaron, I mean some of them are yes, 30 to 60 days. Some of them are a couple of quarters. Industrial ones take a little longer but I think we mentioned specifically on the largest one we just mentioned, we're looking at a 90 days or less window of ramp. So as we move through Q2, that should that should get us through the ramp on that client. Others are just come as they come.
Aaron Spychalla
Understood, thanks. And then just maybe on free cash flow, you touched on it a little bit, but it sounds like that was mostly kind of working capital related to end the year. Just it sounds like are you thinking that that improves as we kind of move throughout 2024?
Brett Johnston
Yes, absolutely. And we've talked about that as a timing. We expect to finish the quarter strong, especially on AR and collect a lot a lot of that that pushed forward. So you back that out and we certainly would have would have finished the year as a generator of cash operating cash. So we still feel really confident about going forward.
Aaron Spychalla
All right. And then if I could just sneak one more in just on the RWS. kind of revenue adjustment in the quarter. Can you just kind of talk about are we kind of complete with those on integration initiatives and hopefully some notion here too much more there moving forward?
Brett Johnston
Absolutely. And just to be clear, it was a cost of revenue, not not a revenue adjustment. So it was on the cost side. And absolutely, we knew we needed to get them on our platform. Our processes first and foremost, and then it was just about going back and doing some cleanup or so, we feel very confident going forward.
Operator
Gerry Sweeney, Roth Capital.
Gerry Sweeney
Thanks for taking my call. Question on the food side or the food distributor, I was curious if this has to deal with the Progenics program? And if it does or is this maybe an update, Fortune 200 company has sort of a foothold plan for the program, probiotics and the potentially into the rest of the industry.
Ray Hatch
So that's one of the great things about all the multiple services that Quest has to offer. Initially, it doesn't have it, but that's because it's expanding to that over time. So that's all upside for us as we move through the next few months with them some. And then also, there's there's things like fleets and other stuff too. So there's an infinite number of penetration opportunities there, and we're excited about probiotics being part of that. And yes, this is our first first to service to food distributor and I'm obviously from my background, pretty excited about that. And we think that this is going to hopefully yield us a lot of penetration in that vertical going forward.
Gerry Sweeney
So suffice to say $10 million, well, eight digits, I'm saying 10 nine. Hopefully, maybe a little more even with that without Protonics. So I mean that's that's I mean, regarding that's a big win with a lot of runway.
Ray Hatch
Yes, that's the revenue piece. There is without all the penetration pieces that we expect to be bringing in the relative near future.
Gerry Sweeney
Got it. A couple of questions. Sg&a, $10 million, I think on Q1 you talked about spending a little bit on tech, but also ramping up. I think sales and marketing, if memory serves correct, get a little older. I was under the impression technology spending may be coming down a little bit, but I'm just curious as to where spending on sales and marketing is great, especially if you can get a return on it. I understand that. Just curious as to where SG&A will come out in the future and certainly for tire, how much RG versus increase?
Brett Johnston
So yes, so I'll take that one, Tom. As we mentioned, we've got we feel really confident with the efficiency initiatives we've got going on continue to build out the platform. So yes, I would I would look at our operating leverage to continue on and be keep we should be able to maintain relatively flat operating expenses over over the year despite a little bit of initial, maybe a little bit of pickup in some additional our spending, as you said, to support the growth, we want to make sure I'm more funding that and excited about the accelerated growth around new new customers. So I do feel we'll have a little bit of spend continue. We're still building out some of those operating platforms from there. As we get closer to the back half of the year, we'll start seeing those efficiencies come through and start. So you'll start offsetting some of that need on the customer to support the new customer revenues.
Gerry Sweeney
Got it. So on SG&A as a percentage of sales probably comes down in the second half, or is that a fair enough?
Brett Johnston
And I would like. Yes, that's a fair way to look at it.
Gerry Sweeney
Ray, a little open-ended question here through RWS spent a lot on technology. Sounds like the sales pipeline is and conversions picking. There's still a lot on the plate that I don't want to get the cart before the horse. But what in your mind, what is the biggest goal for 2024 with some of that I just laid out? Or is it other way?
Ray Hatch
Well, it's up at a macro level, Jerry. We're really excited about new revenue and don't forget I think the ops team has done a fantastic job of penetrating and driving new revenue from the existing clients as well. When you put those together, we see some really nice top line momentum. And combined with I can't say enough about we used the word technology that I was noticing when I was reading this and it's in there. So many times but it is an area of emphasis and the technology is enabling us to scale and drive EBITDA margins. So I think it's a perfect storm. We've been investing with that team for almost two years. I guess I am driving a platform and driving toward zero-touch environment on on invoicing and all the paperwork internally here I can tell you, I used that is. So as you look at Quest larger scale 2024, you should see lower SG&A through this as we move into the back half and really get implementation on this stuff, nice margins and revenue growth, which is going to yield us, I think, some improving EBITDA margins, Jerry, it's I believe a lot of companies I've been with them are either really touting your growth and that's it or you're touting your cost savings. And that's a. But I really think we have both levers going right now. So that's pretty exciting for us in '24
Gerry Sweeney
data growth and efficiency data already. Yes, I very much appreciate, and I'll see you in a few days and we look forward to connecting.
Operator
Greg Kitt, Pinnacle Fund.
Greg Kitt
Hi, Ray and Brett. Could be on the Q three earnings call. You said there were several very large opportunities that have progressed to the final stages of approval. And so I would assume that this one two distributor customer was one of those opportunities and that funnel of several late stage opportunities. Is that right?
Ray Hatch
Yes. A couple of those were ones we were talking about in Q3. So yes, sure.
Greg Kitt
Thank you. Okay. So you had a you had a couple of close. Do you have when you look at your pipeline now and obviously congratulations. This is a great quarter and I'm really excited to see six wins in the quarter several years ago, it could be that they weren't had six wins in a year. I think you're right, you're right, start for the year.
Are there still other customers when you're looking at your pipeline today that you say there's still other stuff out there that we're excited about for? Did you see a lot of that a lot of the opportunities in your pipeline kind of come come through and closes already.
Ray Hatch
And now we've got we're excited about what's in that pipeline. Now what we're talking about, obviously, the six we've mentioned are are there. There are some more that are that are closer than further away?
I guess I'm trying to describe and after I to describe it, I know the pipeline is very healthy.
It's strong. It's as good as I've seen it. And you would think after signing six, six clients, considering our track record in the past, I guess you think that might be emptied downtick, if that's what you're asking. But no, we're very encouraged about what remains in there and what we mentioned in the remarks.
I just want to reemphasize that we talked about investment in sales and marketing. Part of the investment in sales is a bit of a structural change. And I mentioned that in there the sales operations of folks to allow and get more out of that existing sales force or they're spending more time closing in less time doing, I mean, proposals take forever. So so what a lot of our investment has to do with enabling these folks to be able to be more focused on driving that pipeline and building it forward. And one of the roles that we've added is a Director of Sales Operations. That person is a veteran in the industry that knows how to implement a large new client and implementing large new clients is what we're doing now and what we hope to continue to do. The worst thing could happen, Greg, as you do a great job selling, but then you can onboard them in a reasonable period of time. And trust me, there's an art to that. So we foresaw that and really have the right talent in place to be able to make sure that we can go and say, flawlessly and put pressure on from there. There's no, there's no accounts that we're bringing on.
Greg Kitt
Thank you.
That was that was helpful on the large food distributor customer. I think if I heard you correctly, I think it sounded like I think I heard you say that you can talk more about that in a couple of weeks. Did I hear that right?
Ray Hatch
Yes. Yes, we're not quite in a position we'll do that. But we anticipate being able to be more forthcoming on it in a few weeks.
Greg Kitt
Okay, great. Thank you. And so is there the potential that you might be able to tell everybody through that customer is or it sounds like on top, it sounds like there's more information to come?
Ray Hatch
Yes, that's yes, that's what we're talking about. We're hopeful that we'll be able to share more information on that customer really proud of. And so we'll see what we can share with you in a few weeks, Greg.
Greg Kitt
Thanks.
Thanks, Ray. And then I always think the eight figure commentary is really funny because $10 million to $99 million of revenue is slightly up. And so is there any way to think about how that can ramp? Obviously, you're going to start ramping. I think you said in the second quarter is there any any way to think about how that customer could progress over several years, especially as you talked about fleet? And you talked about organic yet at one point becoming an opportunity?
Ray Hatch
We hope to have all of that, you know, is a large customer and it's somewhere it's probably closer to $10 million than to $99 million.
Just to give you some traction at the and as with a lot of these larger customers, they've got huge amounts of potential spend. And that's just the that's just where we're starting. I mean, I we're going to earn our way to the rest of it. But I'm I can't really give you a share of wallet number. I know that's what I'd be looking for for you, but it's it's that's probably as much or more than what we're getting on the front side.
Greg Kitt
Thank you on that unless I clarify piece and so you're winning all these customers, you want to make sure that you're in a position to service them well, and I'm sure that you want it's like this balance between flexibility and cost. You could probably get in when you put the Monroe facility in place. I think this current facility was like coming out of COVID. I think it was the fall of 2020, something like that. Since you were doing $4.5 million of EBITDA. And so now you're doing 16 probably quite a bit more in this year because you had some in some RWS specific stuff you had one customer thing last year, there was a charge in the third quarter and so all that should go away. It seems like it's not unreasonable to say you could do $20 million of EBITDA this year. So the business in terms of EBITDA is up almost five times probably on. Is there something that you can do that gives you flexibility, but still brings the rate down from like $11.5 million on that Monroe piece, while you're winning all this business so that you're making sure you have the flexibility to execute well.
Brett Johnston
And Greg, I think you nailed it for us. You pretty much answered answered the question for such. That's exactly why we formed the Board and management have formed this committee is to make sure that we're able to do exactly that. We don't want to handicap the growth that we've got with gold. We're really confident we're going to continue to grow. We want to be able to support that. At the same time, we like cheaper interest rates on. It's a higher rate environment right now, and we think we're going to be in a better position in the future as we demonstrate better demonstrate the value right with some enhanced margins and better flow-through rate. So we're really excited about where we're going to end up.
Greg Kitt
Thank you. Do you think that that process is there some way to think about how when that could conclude? Is that something that you expect to finish in 2024 by the end of the year, or do you think that could be sooner?
Brett Johnston
I think that's probably a fair starting point from a deliverable. We will probably have some room for it to push a little bit more if we need it to come. So it's hard to set a time line right now. We need to start. We need to find it pick an advisor and start meeting and work through the options that we've got.
Greg Kitt
Okay. Okay. Thank you. And then on SG&A on that a little bit of a step up in Q1 and to some of that, it sounds like tech, but probably also maybe some of these integrations, I'm not sure is there is there weighted in the past when we first invest in, we would see 50% of incremental gross profit dollars fall to EBITDA. And so if you were investing in SG and obviously business changes and because you're investing to scale it much better, which we're excited about. But in the first quarter and foreseeing SG&A increase by $500,000 or $600,000 sequentially, should we think that there may not be a $500,000 or $600,000 sequential increase in gross profit to offset the increase in SG&A? And I'm trying to think through I'm trying to think through this increase in SG&A and the implications to profitability from the first part of the year?
Brett Johnston
Yes, you know, it's hard to talk through quarter to quarter future. But to what we I mean, you asked the question, can we expect 50% plus operating leverage going forward. We certainly believe we're in a position to do that now and improve on as we roll on these new automation platforms into our into our processes. Again, we're really excited about that operating leverage continuing throughout the year.
Greg Kitt
Okay. Thank you. I'm out of the hop off after this last question to give other people a chance. And so if you you had $3.5 million of adjusted EBITDA for the December quarter, and that included about $1.2 million charge. So you would have been more like I think the release said $4.6 million of adjusted EBITDA.
Okay. And so so on if SG&A goes up by $600,000 sequentially, should should gross profit go up by $1.2 million sequentially, so that you're seeing 50% of that incremental gross profit fall through to EBITDA? Or is are there investments in the first quarter that are kind of outside of that 50% flow through.
Brett Johnston
That's why it's hard to talk because there is some other stuff on some investments going on. But I think it's fair to assume that we'll see we expect a 50% operating leverage going forward, say this.
Greg Kitt
Okay. Thank you very much. I'll hop back in the queue if I have anything else.
Operator
George Melas, MKH Management.
George Melas
Thank you. Good morning. Gains CAGRs. Things are going now. Congratulations. Quick question on the sales operation where you mentioned that you hired a direct sales operation was the sales force previously partly responsible for that being at the customer and now they are freed up and they can focus more on selling and closing is that kind of what you said?
Ray Hatch
Yes, it's a it's kind of a bridge, George. First of all, the salespeople will add a lot more to do than that. They now they can focus on sales and closing, but it also it also helps our operations team with implementation be much smoother. And I mean that the plans are laid out. He does a great job. There's a full matrix of everybody's responsibility. The timing on every every little thing implementing a large customer is it's really hard and there's so many things that can go wrong George, when you're rolling out a customer with 1,000 or 2000 locations, and we were so much we're infinitely better prepared to do that, execute on that better than before. And also freeing up both sides of that equation, sales and operations to focus more on their core strength. So that's it's kind of a bridge type role that takes away from both sides. So it's very beneficial.
George Melas
Great. That's interesting. Thanks. But at the $1.7 million in savings related to our WS., what is that? And where does it flow through what the components of that could be more through our surveys it technology? Or is it also some people that were at or WS. one point was?
Ray Hatch
Hey, yes, it's just purely from the well people, George, and there's additional I think I think we mentioned in the comments, we expect the technology to continue to give us additional yield, but we're being clear about the $1.7 million, that's a hard cost savings that's purely while payroll.
Brett Johnston
Yes, and most of that was baked in already in Q4 as it was partially in place for Q3.
George Melas
Okay. So almost I can call them, but one problem is they came into the December quarter?
Brett Johnston
Yes, exactly.
George Melas
Go a long way on the large on the on the on your large declines on the distribution side, how is that related to programming? Because programming is really dealing with food waste, whether that's through distributor. I'm not exactly exactly sure what they do, but they mostly brew the goods to the store. So how could that lead to a Progenics deal? And maybe maybe also talk take that opportunity to talk a bit about the pipeline for Progenics and and what does that look like?
Ray Hatch
Yes. And actually, food distributors do generate quite a bit of organic waste charge of surprising linking it you get into you get into especially and I do want to speak at a food distributor for the cooler stuff, which is dairy and produce and things like that. So there's quite a bit of shrink at the at the distributor DC level as well. But in addition, this company also has retail stores and on top of that. So there are distributed there a bit of a hybrid. So you've also got retail stores evolve. So it's really a great fit for Progenics in the future. We're excited about that and the pipeline for project Progenics has almost mispronounced his data. I'm going through it in my head as I'm talking, there's there's a couple of really nice grocery store chains that that are in that pipeline that are in active conversations with right now, I think I've mentioned before, Progenics is not an easy sale. It's a good product, but it's a it involves it's intrusive in a way it involves operational changes in the client. And anytime you're looking at large stabilized clients and you're asking to change their operation regardless of how how valuable the outcome would be. It slows the process down, as you can imagine. So we're we all wish to move faster, but that definitely the product Progenics itself is compelling it's more of a how do we get this implemented kind of thing for the clients. So we have an active pipeline and also within our existing clients like the one we mentioned earlier, we hope for that booking increased.
George Melas
Okay. Thank you very much.
Operator
Nelson Obus, Wynnefield Capital.
Nelson Obus
Yes, yes, I just had an accounting minutia. I mean, obviously IWS was a difficult integration. I appreciate you being clear here as to what the problem was and that and date the current of the current fiscal year, just you have an adjusted number of$ 3.5 million. Just from an accounting perspective, is there a problem with a $1.2 million at the way it reads here as an adjustment to an adjustment.
I guess the question for Brett, why wouldn't you immediately make it$ 4.6 million and just point out that there is an IWS issue or is it something in the accounting realm? It makes it difficult to do that?
Brett Johnston
Nelson, I mean, it is it was missed expense in prior periods. So when I think about add-backs, one is kind of non-cash, but then Tom, you can can be a piece of that. But but because it was missed expense in prior periods, we just didn't feel like it was appropriate to fully added back.
Nelson Obus
Okay. But anyway, it's behind us now and that's for sure, Ryan. And my and my other question simply, I mean, obviously, you look at the as you pointed out, very clearly, if you look at the if you look at the debt gone up exactly as much as accounts receivable and that's because your DOS with slow, slow pay and all that other issue, my question is, do you think you'll have that cleared up in Q1 and get the DOS back down into the low 60s as opposed to 75 where we are now?
Brett Johnston
Yes, absolutely. Nelson. We've been we've been focused even just as the anecdote one customer paid on January second, instead of December 31st. So and that's why we say those are the timing issues and the is very focused. I'm excited about the energy I've seen on the collection side, and I feel really confident how we're going to end the quarter.
Operator
This concludes the question and answer session. I would like to turn the conference back over to Ray Hatch for any closing remarks.
Ray Hatch
Thank you, operator. I appreciate that, and I appreciate all of you.
I want to reiterate our positive outlook. We're really excited about about new customers coming on to Quest. And we're also extremely excited about our existing customers re-upping with us and extending. I think that's a real comment commentary on that and the work this team does to keep these clients happy.
I'm so excited about that. I do want to thank that team for all their efforts and the value that they're bringing we have a lot of initiatives, and this team has been working really hard over the last year or so, and they're really starting to reach fruition is exciting for me to watch that happening. And I couldn't be more proud of these guys having long term vision, staying focused on execution execution as Sandy as things come to fruition. So we're looking forward to keeping you updated, of course to come.
And lastly, I want to thank all of you for your continued support of Quest, and we're excited about telling you about future things. So that's it. Thank you very much.
Operator
This concludes today's conference call. You may disconnect your lines. Thank you participating, and have a pleasant day.
