Quest Resource Holding Corporation

Good day, and welcome to the Quest Resource Holding Corporation first quarter 2022 earnings conference call. Today's conference is being recorded. And now at this time, I'd like to turn the conference over to Mr. Dave Mossberg at Investor Relations. Please go ahead, sir.

Thank you, Cody, and thank you, everyone, for joining us on this call. Before we begin, I'd like to remind everyone that this conference call may contain predictions, estimates, and other forward-looking statements regarding the future events and future performance of Quests. 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 certain significant risks and uncertainties. Actual events or Quest results could differ materially from those discussed in the forward-looking statements as a result of various factors which are discussed in greater detail in Quest filings with the Securities and Exchange Commission. your caution not to place undue reliance on such statements, and to consult the SEC filings for additional risks and uncertainties. Quest 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 industry and market data and other statistical information, as well as Quest observations and views about industry conditions and developments. The data and information are based on Quest estimates, independent publications, government publications, and reports by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of these sources or the accuracy of the information. Certain non-GAAP financial metrics will be used during the call. These include non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financial 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. And with all that said, I'll now turn the call over to Ray Haas, President and Chief Executive Officer.

Thank you, Dave. And thanks, everyone, for your interest in Quest. We had a strong start to 2022. We grew gross profit dollars by 75% year over year. We grew adjusted EBITDA by 42%. That growth continues to be driven from both organic sources and acquisitions. First quarter results demonstrate the scale and scope of the change that Quest has undergone in the past year. With all this growth, we have also doubled the size of the company in the past 15 months, and we significantly diversified our in-market and client mix. We had a lot of activity in recent quarters, and I want to recognize and thank our team for their hard work and extra hours to continually make our company better and improve our client experiences. Before I go into an update on our progress, I'm going to turn the call over to Lori Latham, our Chief Financial Officer, to review the financials.

Thank you, Ray, and good afternoon to everyone. During the first quarter, we had strong revenue and gross profit dollar growth year over year. As we have said on previous calls, gross profit dollars is a key metric we use to measure the success of our initiatives. Because our service mix can vary significantly from quarter to quarter and year over year, we do not manage the business to gross profit percentage. Rather, we manage the business to drive gross profit dollar growth. We feel that gross profit dollars more directly correlate to the increased contribution we see from client activity. With that said, we had a great quarter when it comes to gross profit dollars, with growth coming from multiple areas in our business. Gross profit dollars increased 74.7% year over year to 11.2 million. The primary factor driving the increase was related to the acquisitions we completed during 2021 and the first quarter of 2022. which accounted for about 80% of the year-over-year increase. Organic growth from new and existing clients was the other primary factor driving gross profit dollar improvement. Organic growth was led by onboarding and ramping activities with several large clients that we mentioned on prior calls. Moving on to a discussion about gross margins. For the first quarter, gross margin was 15.7% of sales versus 18.3% a year ago. Gross margin was within our targeted range, and the year-over-year difference is almost entirely due to the changes in our service mix. There were four primary drivers for this change. First, the service mix from the businesses we acquired has an average gross margin that is lower than our pre-acquisition mix of services. A large portion of the acquired business mix is related to the industrial market, which tends to generate lower margin revenue from commodities, such as scrap metals. The second factor affecting gross margin percentage was related to organic growth in the industrial segment. We have begun ramping business with two new industrial clients during the quarter. These industrial clients typically generate lower average margins. The third factor affecting gross margin percentage is related to the organic growth for new clients overall. In many cases, gross margin tends to be relatively lower as we bring on new business, which we traditionally grow over time Margin from new business tends to improve over time as these accounts mature and we optimize service levels. This is the same process we have successfully utilized to drive margin improvement over the last several years. As we said last quarter, this will likely continue to be a factor with the continued organic growth we anticipate for 2022. Before I move on, I want to make a note about inflation. While there may be brief periods in the future when we have temporary lags in the timing of adjusting rates to clients, inflation did not have a material impact on first quarters year-over-year comparisons. Generally, we are and have been able to offset inflationary increases in costs, such as fuel, labor, and certain capital items, by our flexible pricing structures and our cost recovery fees in our contracts. Looking forward, we expect continued growth in gross profit dollars to come from a combination of organic growth and contribution from the businesses we have acquired in 2021 and the first quarter of 2022. Looking at SG&A expenses, which were $9.3 million during the first quarter, compared to 4.3 million during the same period last year. The 5.1 million increase primarily relates to the business operations that we acquired in 2021 and 2022. Labor costs increased 2.7 million, which was mostly attributable to added headcount from the acquired businesses. Acquisition and integration-related expenses increased by $1.3 million. Other administrative expenses, which were also primarily related to acquired business operations, increased $708,000 year over year. Travel and marketing expenses increased $137,000. For the balance of the year, we expect SG&A costs will be around nine to nine and a half million per quarter. The increase reflects the added overhead costs from acquired business operations, ongoing acquisition and integration costs, and increased investment in systems, process, and people to continuously improve efficiency and scalability of our platform. During the first quarter, depreciation and amortization increased to 2.4 million. versus $407,000 a year ago. The increase was primarily related to amortization of acquisition-related intangibles. We expect depreciation and amortization to be approximately $9.5 million for the full year 2022. During the first quarter, interest expense increased to $1.6 million versus $561,000 last year. The increase is primarily related to the debt financing for acquisitions. Adjusted EBITDA, which excludes acquisition integration costs, increased 42% to $3.7 million year over year. Moving on to the review of the cash flow and balance sheet, our cash balance was $7.9 million at the end of the quarter versus $8.4 million at the beginning of the year. We used $391,000 in operating cash flow during the first quarter. The use of cash primarily reflects losses, and the investment in working capital supports the significant growth year over year. For the quarter, CapEx was $323,000, and we utilized approximately $3.1 million in cash to finance first quarter's acquisition. At the end of the quarter, we had $71.3 million in notes payable versus $67.9 million at the beginning of the year. The increase primarily reflects the financing for the acquisition completed during the first quarter. So at this time, I'll turn the call back to Ray.

Thank you, Lori.

We've made tremendous progress with our strategies over this past year. Not only have we more than doubled the size of the company on a run rate basis, but we've also built a platform for continued profitable growth and reduced the risk profile by lowering the customer and in-market concentration. In the past year, we've been very active on the acquisition front. In total, we've made four acquisitions in 2021 and one in the first quarter of 2022. We've been focused on integrating the acquisitions. Typically, our acquisitions have been straightforward when it comes to integration. We bought businesses with strong client relationships, and our integration process was very similar to the processing of onboarding a new client. However, naturally, larger, more diverse businesses are somewhat more complex and therefore take longer to integrate. In those cases, we project fewer short-term integration savings and plan for a slower, more conservative integration process. and in-stream are examples of larger, more strategic acquisitions. Integrating these businesses and achieving the benefit from combining operations will take potentially 12 to 18 months. That is consistent with our expectations going in, and our primary focus is on transitioning to customer relationships and subsequently gaining natural back-office synergies. Primary benefits of strategic acquisitions relate to our ability to serve customers as well or better than before joining our program to enhance revenue and to improve cost of sales, rather than purely from a G&A reduction. Importantly, all those benefits also accrue to our clients in terms of enhancing our value proposition. To illustrate these benefits, I'm going to give you a few examples of a fully developed service program that RWS and NSTREAP have built. We believe these programs will be highly leverageable in terms of expanding our service offering with our existing clients. They also give us greater purchasing power for vendors, increased value from waste streams, and enhanced value proposition for potential clients. My first example is with recycling pallets. RWS has built an impressive offering with a large network of vendors to refurbish or recycle pallets. We've been introducing this service to existing clients across our end markets. There's a lot of interest. And we've already added pallet service to an existing Quest client, which when fully integrated should add a million dollars in incremental annual revenue. Moving on to another example, InStream has built a significant focus around metal recycling for both ferrous and non-ferrous metals. By adding InStream, we've expanded the variety of waste streams that we can recycle. And we've expanded the number of metal recycling vendors by 10 times. The greater scale from incremental volumes and larger vendor base gives us opportunities for reduced costs. Another good example is cardboard. RWS already had a sufficient volume to create direct relationships with paper mills who are the end user of this commodity. With their added volumes and direct relationships, we can garner higher value for the cardboard that we recycle. We've also added several plastic recycling vendors to our network through RWS. A lot of the recyclers are complaining because they can't get enough plastic. RWS has a good network that we're tapping into to recycle increased volumes of plastics at better economics. I will also add that there is strategic value from those acquisitions in attracting new clients. With greater scale and expertise from RWS and InStream, we've enhanced our ability to respond to opportunities that were previously not a good fit for our capabilities. As far as integration work, We've been actively introducing and cross-selling service offerings and are working with vendors to optimize efficiencies and gain the benefits of scale and scope. In addition, we're working to optimize the acquired business and incorporate sales and operating processes that we developed at Quest. By incorporating the same types of operational discipline that we've established at Quest, we think there are opportunities to enhance their margin profiles. In sales and marketing, we've introduced and implemented Quest's discipline process. These businesses were historically more regional in nature. Now, with the benefit of Quest's national platform, we're prospecting for new business on a national scale that is consistent with Quest's core strengths and greater product breadth. Along with this comes client mapping to understand who the key decision makers are, a detailed understanding of their service needs, a sales plan from first conversion to close, as well as a discipline pricing strategy. We are also implementing vendor relations and procurement management disciplines to the acquired business. Previously, they did not have a fully built-out process in this area. In the same way we handle vendor relations at Quest in areas such as right-sizing and route optimization, we're going to market with their vendors focused on a win-win contract revisions. We expect this exercise to have a positive impact on cost of goods. Again, I want to remind everyone that our goal with vendor relations is to create value for all parties, not just beat up a vendor on price. By adding volume from the entire Quest footprint, vendors can benefit with greater asset utilization, Quest benefits from lower pricing, which has a positive impact on cost for our clients. We continue to evaluate M&A transactions. I want to emphasize that we'll continue to maintain discipline in making acquisitions, and we'll only execute those that fit our criteria. Going forward, there will be years like 2021 when we find several good deals to fit our criteria, but there also may be periods when we don't find any. I want to note that M&A is not a growth strategy by itself. M&A will continue to be a driver of growth for our business, but it is only one of three growth drivers. The other two are penetrating existing clients and adding new clients. Moving on to a discussion about our numerous organic growth initiatives. Market conditions remain favorable for our business with positive secular trends, including increased pressure for large companies to improve their sustainability and comply with increased regulation. Increased prices for landfill and tipping fees are also shedding more light on the waste bin among larger companies and enabling us to start conversations with prospects about how we can improve sustainability of their waste streams in a cost-effective manner. Clearly, our value proposition is resonating with clients. Our ability to provide a uniform and auditable data set across multiple waste streams for use in sustainability and operational reporting is playing a big role in new clients selecting Quest. By centralizing all of our clients' waste streams with Quest, we were able to improve efficiencies, maximize value for commodities, which also played a key role in being selected by new clients. Over the last six quarters, we've improved targeting and closing the right clients. Our sales and marketing team and their leadership are performing well. I want to recognize them for a job well done. New client wins secured during 21 continue to ramp the first quarter and are increasingly contributing to our growth this year. Regarding new clients in 2022, several large opportunities across multiple end markets are working their way through our pipeline and are nearing engagement. We are also continuing to add new prospects to the funnel. I feel confident that we'll have similar success at securing new clients during 22 as we did during 21. Regarding our outlook, overall, our positive outlook for profitable growth has not changed. Pressure to improve sustainability and increasing cost of landfills are lowering the bar for adoption of recycling services. We continue to view inflation as a net neutral to our business as our contracts have mechanisms in place to adjust. The contribution from new client wins will continue to provide incremental gross profit dollars as we onboard these programs. We are investing in personnel, technology, and processes to further grow gross profit dollars, enhance client service levels, and ultimately expand bottom line profitability. Acquisition activity is continuing, and we expect it to be an ongoing contributor for growth. Based on all these factors and the business we have in hand, we are optimistic we will continue to see positive momentum in 2022 and the next several years. I look forward to keeping you updated on our progress. We'd now like the operator to provide instruction on how listeners can queue up for questions. Operator?

Absolutely. Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you'd like to ask a question. We'll take our first question from Aaron Spichala with Craig Hallam. Please go ahead.

Hi, Ray. Hi, Lori. Thanks for taking the questions. Hi, Aaron. Maybe first, what end markets are you seeing the most traction with today and Can you kind of talk a little bit about what's driving that in more detail? You know, I saw some new logos in the deck recently, so good to see that. But just maybe talk a little bit more about the outlook for closing some of those larger pieces of business as we look to 2023 and if you're just seeing any impact from the broader kind of macro on that pipeline.

Yeah, thanks, Aaron. You know, we continue to believe that we have a great offering for all the end markets. Sometimes some of them have more, I don't know, momentum than others. And if I had to pick one right now that I feel really strongly about, I think it's the industrial market. It goes back to what we've been talking about a long time, the multiple waste streams, the complexity, the need for data reporting. It kind of hits on all cylinders. And we have a lot of that type of good growth in our pipeline that we mentioned earlier. So I would say probably the industrial, heavy industrial segment.

All right, thanks. And then, you know, maybe Second question for me, just on the organic growth that you're seeing with existing customers, can you just provide a little bit more detail there, you know, what's driving that and kind of the outlook for that as we look towards the rest of the year?

Yeah, thanks, Aaron. Organic growth with existing customers has been a success for us for years and years and years. Our client services team continues to do a great job of finding other opportunities to serve, other spins that they have existing that we can bring over to Quest. And we're also having geographic expansion as well, where there's two types of penetration, right, with these national clients. One is adding additional lines of business. Two is adding additional locations. And we're seeing both of those right now. And to be fair, we've been seeing it for quite a while. So I think both of those work for us. I mean, the fact that we handle so many different waste streams and can provide so many different services It's hard to imagine that we don't have continued opportunities to penetrate a lot of these folks, and our team continues to do that.

All right. Sounds good. I'll hop back into queue. Thanks for taking the questions. Thank you, Aaron.

Thank you. We'll take our next question from Jerry Sweeney with Roth Capital.

Hey, good afternoon, Ray and Lori. Thanks for taking my call.

Hi, Jerry.

Hi.

excuse me, just wanted to touch on margins. You give a lot of details in the commentary aspect, but just curious, obviously you have mix, you have acquisitions, and then you have organic growth. How much opportunity over time is there to optimize margins? Let's say in the industrial side as well as the acquisition side? Or are they, the acquisitions, were they already pretty optimized?

I appreciate you asking that because, no, I don't feel they are already pretty optimized. I think one of the things we mentioned, Jerry, in the note was the, you know, some of the things that we're bringing to the table there from the sourcing side, you know, for example, meaning vendor relations. I think we have a lot of cost of goods opportunities in the industry the newly acquired companies. So I definitely see expansion there. And as far as the clients themselves, the internal Quest clients, from a margin perspective, these new ones are bringing on, and we're thrilled, tremendous opportunity growth and a lot of the growth fueled by that. But if you look back, Jerry, from when we first talked years ago, our ability, this team's ability to take existing clients and expand margin without having to increase prices, through continued processes, whether it be right-sizing, any type of optimization on the cost side, along with adding in new services, we've always been able to expand margins, and actually in many cases significantly without a negative to the customer. As a matter of fact, many times a positive to the customer by sharing some of that improved costs. So the answer to your question is I feel like over time the team here will do what they've done for years and expand margin in the existing clients And definitely I think we can have impact through improved sourcing on the new acquisitions.

Got it. I didn't want to get the carpet for the horse, so I assume that there was opportunity optimized, but that's helpful. No, absolutely. I'm glad you brought it up. Thank you. You're getting to be bigger. You're making some acquisitions. There's a lot of opportunity to sort of add value longer term. When you look at Quest's offering, whether it be IT, I think there's even some sensors, there's a lot of opportunity out there. What do you see Quest going over, you know, 12, 24, 36 months to sort of continue to push out that sort of IT envelope?

Yeah, you know, first of all, we want to continue to, well, we want to grow on what we're already doing well and continue to expand and penetrate like we were just speaking to with Eric's question. But there's a lot of technology pieces on the environment, and the sensors on those types of things are really kind of sexy and shiny objects, and we'll definitely look at those as opportunities. But we really believe from an IP standpoint that the data that we're collecting and the ability to enhance our offering and maybe even monetize in more cases with the data and the benchmarking we can create is a tremendous opportunity for us to expand on. We're at the tip of the surface on that, or right at the surface of that, and we think there's great expansion opportunities. Many others as well, but when I think out loud as far as where the best near-term opportunity is, I think it's in what we're already doing, enhancing it and frankly marketing it and positioning it, packaging it better.

Got it. And then speaking of cross-selling and some opportunities, Do you ever look at your existing clients and say, you know, we have tracked how penetrated you are within those clients? And do you have any, if you could provide any, maybe qualitative, quantitative update as to when you look at your existing customer profile, you know, how much further you can go with it just with the existing clients?

That's a task for client services, and they're constantly trying to identify those spends that we don't have. It's not as scientific as you would think. Like for my past life, it's a food distributor. How much food are they buying? Well, it's fairly quantitative as opposed to how much you're selling. There's such a variety of services, Jerry. It's kind of hard to nail that down and quantify it. But everybody does. All of us do have targets as far as types of spend and clients that we don't have. that we continue to try to push for. I would just say we believe there's a lot of upside out there, but it's really hard to put our finger on what that dollar amount looks like.

Okay, that's fair. I appreciate it. I'll jump back in line. Thank you. Thanks, Jared.

Thank you. We'll take our next question from Chip Moore with EF Hutton.

Hey, Ray and Larry. Thanks for taking the question. Hi, Chip.

Hi.

Hey, what is this? follow up on that margin discussion a minute ago. You know, if we think about RWS and in-stream being, you know, larger deals, obviously, and taking, I think, you know, you mentioned a little bit longer to integrate just naturally, kind of factor that and industrial leading organic growth as well as the ramp of some of these more recent pretty big wins should be really looking maybe, I don't know, to the back half of next year to see sort of some more normalized profitability materialize, or how should we think about that?

Yeah, that's a great goal to have, and I – well, I've got to be careful about saying exactly when I expect to see it. But, you know, our process has been pretty consistent as far as enhancing margins over the course of a year. I mean, it takes quite a while. But I think you'll see it more normalized as time goes on. I hate to give you a time frame. I'd like to be faster than whatever time frame we're thinking of, you know, but – Each one of these things takes on – normalized is an interesting term in and of itself, Chip, because in some of these areas as we're branching into them, I'm not sure what normalized is.

I think the mix of services has just changed a bit fundamentally, but we're going to optimize based on those relative types of services. We know where we want to target those. So I think it lifts the boat overall, but the mix of services also – is influential.

Got it. No, that makes sense. Yeah, optimize, I think, is the right word. Not normalize. Okay, and then just one more, I think, more big picture. You know, you've diversified quite a bit, as you talked about. You talked a little bit about some of the specific end markets, how they're doing. If I think about just bigger picture, you know, recessionary risk in the broader macro, any impact that might have you know, you're presumably better positioned than you were a few years ago. But we need to just kind of speak to that.

Oh, yeah. I think, of course, I'm not an economic forecaster here. But if you look at some of the downside risk from the general macro economy that you're referencing, I think we're in a much better position than we were one year, two years, three years ago. I'm thinking we were actually just talking earlier as we entered into COVID. We survived it well with our diversification and we're immensely more, not immensely, we're significantly more diversified today than we were then. And so that being the case, the only thing I can think of is the more diversified you are as you enter into questionable times or rough waters, the better off you are. And we're definitely more diversified today than we were.

Perfect. All right. Appreciate it. Thanks. Thank you, Chip.

Thank you. Our next question comes from Samir Joshi with HC Wainwright.

Yeah, thanks, Laurie. Nice to speak with you. Hi, Samir. My first question is on the gross margin or gross profit of $11.2 million. Are you willing to share what contribution there was from the acquisition you completed in mid-February and it probably will be adding additive in the next, when it is a full quarter, and whatever that level is, is that what you are happy with now, or did you miss some opportunities in saving costs at the Congress level there?

Would you ask the last part again, Samir? It wasn't really clear.

Yeah, I mean, are you happy with the gross margins I understand it is in transition. I understand that you will have opportunities to save costs at the COGS level from these acquisitions, as we have discussed. But were there any other factors that may have caused the gross margins to be slightly lower?

No. I mean, the vast majority has to do with the mix in change of services from that whole book of business that we've acquired to And then that we have a lot of organic growth, but that has been concentrated more recently in the last 12 months in industrial. And the industrial accounts tend to have services that are very high volume and maybe just a little bit lower average gross margin percentage. So that's why, again, we emphasize the gross profit dollar growth. We think that there's opportunity with both new customers and the newly acquired businesses, once again, to optimize and improve gross margin percentages, but we've also just had a mix and change in the mix of services we're providing. So overall, we're still within our range, and I think we've talked about this in the past, that as we grow organically, as we acquire businesses, That mix and percentage can change, but we will always have great programs here to then work with cost of sales, to expand with those customers. So we see a runway for us to continue to do that with these newly acquired businesses and with the new customers.

Got it. And then the first part of my question was just related to the mid-February acquisition. how much incremental gross margin dollars were included in this 11.2?

Oh, the acquired GP.

So the acquired GP for this quarter, hold on just a second, let me make sure I get this. So that was about 3.8 for the quarter.

So that means that going forward, you probably will have much higher gross profit dollars if you maintain similar business mix and service mix in this quarter.

We'll have higher gross profit dollars as we move forward.

Oh, yes. As we've said, that's still fully our intention of contingency growth this year in GP dollars.

Right. Okay, got it. And then, so that's good. And then the other good news, I think, is on the SG&A front, I think you mentioned around 1.3 million of this was from acquisition-related and integration-related expenses. Those eventually will get out of the way, right? Maybe you will have some integration expenses over the next few quarters, but those will just not be there anymore going forward.

You know, as long as we have continued acquisition activity, we may have acquisition-related expenses. And the integration expenses, you're correct. Over time, as we move past the newly acquired period, that integration cost would decline for any particular acquisition.

Right, right. Okay. And then the outlook you gave on SG&A of $99.5 million per quarter, Does that include any stock-based comp? I know it doesn't include B&A, but is there any stock-based or other non-cash items in that 9.5?

Yes, it includes whatever stock-based comp we have. It's in that SG&E number.

Got it. Thanks for that. Congratulations on the progress, and Laurie, I think we will see you for another quarter, but we will miss you thereafter, I guess.

That's true, and I look forward to being able to speak with everybody again with the next quarter.

Absolutely. Thanks, Samira.

We'll take our next question from Greg Kitt with Pinnacle Fund.

Hi, Ray and Lori. Thank you very much for taking my question. Hi, Greg.

Hi, Greg.

So I think maybe just a clarifying question on what Samir just asked about the acquired gross profit dollars in the quarter. I thought that Samir's question was specifically about the acquisition that you made in Q1 of that other services company. And I think that you highlighted that that was in that release $600,000 of annual net operating income. So I just wanted to make sure that I had a clear understanding of if that gross profit dollar contribution number that you just stated for Q1 was for that acquisition that you made in Q1 or if that was all of the acquisitions that you made year over year.

Well, it's all the acquisitions we've made, including two months of the one in Q1. That was effective February 1st, so that was included two months of that one.

Okay, great. Thank you. And then just on the gross profit, gross margin conversation, I 100% agree. I've always thought about your business from a gross profit dollar perspective is that analysts are kind of building out their model. It sounds like what I think I'm hearing from you is were they to think about the business on a gross margin standpoint and make sure their models make sense. It sounds like margins kind of in line with the current rate makes sense for now because you had margin or a service mix shift, and then some of these new customers, you know, there are opportunities to expand gross margins, but that's going to take time. Is that kind of the right way to think about it, that for maybe the rest of the year or the foreseeable future that margins are more like the, you know, mid-ish teens rather than closer to 20%?

Well, I think what we're seeing right now is a base for us, depending on, you know, if our commodity pieces continue to stay at the levels they are, and we have only room for continued upside then as we add and expand.

But it is a process, Greg, like you were just alluding to. I mean, we're excited about having more to optimize, which Quest has been great at optimizing, and now we just have a lot more to optimize. And, yeah, that's kind of where it is now. But over time... we anticipate having a real positive impact on that.

Thank you, Ray, and maybe just a quick follow-up on that point that you made. I've thought about you doing just a really good job with your customer portfolio prior to RWS and InStream of expanding with your customers, and I'd love to hear if you think that there's maybe more of an opportunity with RWS and InStream's customers of expanding you know, to additional locations and continuing to add waste streams into those customers, you did a good job talking about the cross-selling opportunities of RWS's programs to the pre-acquisition customers, but maybe not the other way around.

No, we didn't speak to that too much. That's a great catch, Greg. I think there's tremendous opportunity there because we're just picking particularly on RWS and NSTREAM as the larger, relatively more complex specialized acquisitions There's a tremendous amount of opportunity for us to sell under the services that we provide that they never did provide. Industry may be even more so because they're fairly more narrow in their offering as well. So they all have great clients. It's one of the reasons we bought them, you know, is that the client portfolios are strong and there's brands and names that we'd love to have included. And so with that comes the opportunity to expand on that side as well. Absolutely. Absolutely.

Great. And one last one for me. You talked about your pipeline continuing to mature and that you expect some new customer wins to happen. I can't remember exactly the language, but it sounded like this year. And so going forward, some companies talk about every single customer win that they have. Some companies talk about only really material customer wins. Um, and maybe for you, that's, you know, mid single digit revenue or double digit revenue opportunities. Um, do you two part question, do you expect to announce. You know, all customer wins going forward. So if we don't hear anything from you about new customer wins, does that mean that you're not having any new customer wins? And then, um, on the second part, is there a way to think about what some of these customer wins that you referenced could be in terms of size?

Yeah, I appreciate you asking that question because, no, we don't. We only get in the habit of announcing every new customer win, especially the bigger we get, you know, with these expansions. I mean, again, if you look at we're twice the size we were a year ago as a run rate, it gets a little cumbersome to do that, and that's not really our plan. So if we aren't announcing customer wins, it means we're not having wins. I mean, it doesn't mean that we're not having them. It's just maybe not be directly impactfully materialized. All of the ones we're talking about are above seven-figure range, stronger seven-figure range, maybe even up to eight in some cases at full maturity. Those are the kind of things we try to share with you guys, Greg, in that scenario.

Okay. Thank you very much for your hard work. And, Lori, we just think really highly of you. And you set a high bar, so hopefully – Quest finds somebody else that can help Ray take it to the next level.

Well, thank you for your kind words, and I certainly believe they will, and we'll continue with our growth plan. It's a great team that I work with here. So I appreciate your kind words, Greg.

I echo that too as well, Greg. It's a big challenge for us to to find that. And Lori's going to be involved with us in some way, form, or fashion for a long time beyond that. And so we're excited about her continued support. But yeah, it's big shoes to fill. Thank you.

Thank you. And we'll take our next question from Nelson Obus with Winfield Capital.

Yeah, I just wonder what's going on in the food vertical? I mean, restaurants are clearly coming back. And any comments there?

Yeah, the food vertical has actually become a lot more active and viable than it was, as you know, Nelson, during the COVID times. So they're definitely in our pipeline as well, restaurants are. And then the food vertical also consists of grocers, and that's a whole different sales approach. And grocers, the pipeline is nicely represented with grocers as well. So we have both retail and food service opportunities that we're looking to grow on right now.

Okay, and then as a follow-up, I wanted to dig in a little bit to the add-back for acquisition integration-related transaction costs. I think you mentioned on the call that these could last, the integration component could last 12 to 18 months. And if you take that number in the first quarter, which includes acquisition, that goes over $5 million. But the acquisition costs burn off pretty quickly. So can you kind of get a little more granular there and maybe share with us how you track integration costs and what's exactly involved in that?

Well, Nelson, you described it pretty appropriately that some of the integration costs can be have an ongoing monthly amount for consultants or integration systems, and that could be 12 to 18 months. The other acquisition is very transactional and professional fee driven. So as far as tracking it, it's more difficult, of course, to have the cadence of acquisition, additional acquisition expenses, because this is opportunistic. The other integration cost piece, it just will decline over the next 12 to 18 months based on the acquisitions we just recently did. I don't think we've been breaking out the two separately at this point, but I do see that it does decline. Even SG&A-related expenses for integration will be declining because the acquisition's rolling off and some of the consultants will be rolling off.

I mean, without giving definite numbers, can you give us some sense of that $1.3 million in Q1? How much was acquisition and how much was integration?

I don't have that right in front of me. Let me apologize. Don't have that right in front of me.

That's fine.

Okay. Okay.

Thank you. And that actually does conclude today's question and answer session. I'd like to turn the conference back over to management for any additional closing remarks.

Thanks, Operator. And more importantly, thanks to all of you participating on the call. For your interest in Quest and your continued support, I want to thank the Quest team for their ongoing efforts to deliver value for our clients and shareholders. A lot of tireless work done by those folks, and I can't thank them enough. And it's really showing up in our results. All of our initiatives are working well. We've gained a lot of momentum in recent quarters. I feel like we're still in the early stages of our growth efforts, and we have a long road of profitable growth ahead, and it's very exciting. And I look forward to keeping all of you up to date in the quarters to come. Thank you very much.

Thank you. And that has concluded today's conference. We do thank you all for your participation, and you may now disconnect.