Quest Resource Holding Corporation

Good day, ladies and gentlemen, and welcome to the Quest Resource Holding Corporation second quarter 2022 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dave Mossberg, investor relations representative. Please go ahead, sir.

Thank you, Keith, 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 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. 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. We are cautioned not to place undue reliance on such statements and to consult our 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 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 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 measures will be discussed during this call. These non-GAAP measures are used by the 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 for investors' understanding and 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 in this call will be non-GAAP basis. Full reconciliations of non-GAAP and GAAP financials measures are included in today's earnings release. With all that said, I'll now turn the call over to Ray Hatch, the President and Chief Executive Officer.

Ray Hatch, Chief Executive Officer, Thank you, Dave, and thanks, everyone, for your interest in Quest. Second quarter's results clearly demonstrate the strength of our business model and how we conform well in a market environment that's been challenging for many others. Second quarter results were ahead of our expectations, showing continued momentum from the first quarter, and we're able to offset inflationary cost pressure with flexible pricing and cost recovery fees. At the same time, we've made significant progress integrating recent acquisitions. As a result of our efforts, we've gained significant scale and scope, more than doubling the revenue and gross profit dollars year over year. And year to date, our adjusted EBITDA has increased by 100%. Doubling the company, the size of the company, is not an easy task, and doing that while improving profitability and improving our already excellent customer experience, is even harder. A lot has gone into producing these results, and it would not be possible without an extra mile effort from our team, and I want to thank all of them for these efforts. Before I turn it over to Lori to review the financials, I want to take a moment and say how much I appreciate her for her years of dedicated service. As we previously announced, Lori will be retiring at the end of this month, Lori joined Quest 10 years ago as CFO and has been instrumental in developing our finance and administrative organization. She played an important role in our business transformation over the last several years, as well as helping us manage the accelerated growth we've delivered in the last two years. We have an ongoing search for a new CFO in process, but we know that these are big shoes to fill. I don't have an update on the search other than to say that we have several qualified candidates that we're talking to, I would also note that Lori will remain as a consultant to Quest going forward to smooth the transition. Personally, I'd like to thank Lori for helping me lead the company. She's guided me through the maze that is public companies and enabled me to appear like I knew what I was doing quite often. I miss doing these calls with you, my friend, and I'm forever grateful for her guidance and support, and I wish you great happiness in your next adventures.

Well, thank you, Ray. And thank you for those kind words. I have had the pleasure to work with you and many, many fine people during my time at Quest and who I will dearly, dearly miss. I am confident that I leave the company in good hands with a strong and tenured team and very proud of the achievements the team has made in repositioning the company, adding scale and profitability. I believe the future of the company is exceptionally bright. Now moving on to our second quarter results. Second quarter financial results were ahead of our expectations, which was due to multiple factors, including strong activity from our customers across our end markets, growth from both existing and new customers, and improvements in efficiencies. Second quarter also benefited from improvements we made from ongoing integration work with the recent acquisitions. We made a lot of progress this past quarter, incorporating our best practices to these acquired businesses. And it is beginning to show up in our financial results. We continue to use gross profit dollars as a key metric to measure the success of our initiatives. During the second quarter gross profit dollars increased to fourteen point seven million Which is a hundred and fifteen percent increase year-over-year and a thirty percent sequential increase from the first quarter We try not to make comparisons on a sequential basis due to the normal fluctuations in our service mix and seasonal factors that can make comparisons difficult and That said, the sequential growth from the first to the second quarter was exceptional, so I want to give a little added color. First, strong sequential increase in gross profit dollars came from growth from existing customers, including a ramp of activity from several sizable new clients that we added during 2021. Second, we also saw an increase in the margin profile of existing customers due to a shift in the mix of services and continuous operational cost management. The third driver of sequential growth in gross profit dollars was due to our ongoing integration work of recently acquired businesses. During the second quarter, we saw early benefits from cross-selling and ongoing operational improvements, which includes improving the way that the acquired businesses are contracting, onboarding, and billing for new customers. Looking forward to the second half of the year, we expect gross profit dollars to benefit from continued momentum in our organic growth and continued improvements from our integration efforts. In addition, during the first half of the year, we made a number of improvements to the recently acquired businesses and took advantage of some integration opportunities that impacted the second quarter. I also want to point out that after two years of pandemic-related disruption, we do expect that we could see a more normalized seasonal pattern resume in our third and fourth quarters. Therefore, we expect that the second half of the year will resemble our first half of the year. Moving on to SG&A expenses, which were $9.3 million during the second quarter, compared to 5.1 million during the same period last year. 2.7 million of the increase relates to the business operations that we acquired in 2021 in the first quarter of this year. Labor costs increased 2.7 million, which was mostly attributable to added headcount from the acquired businesses. Acquisition and integration related expenses increased by $561,000. Other administrative expenses, which were also primarily related to acquired businesses, increased $950,000 year over year. In the balance of the year, we expect SG&A costs will continue to be about $9 to $9.5 million per quarter The increase reflects the added overhead costs from acquired business operations, ongoing acquisition and integration costs, and increased investment in systems, processes, and people to continuously improve our efficiency and scalability of our platform. During the second quarter, depreciation and amortization increased to 2.5 million versus 481,000 a year ago. The increase was primarily related to amortization of acquisition intangibles. We expect depreciation and amortization to be approximately $9.5 million for 2022. During the second quarter, interest expense increased to $1.6 million versus $550,000 last year. The increase is primarily related to the debt financing for acquisitions. Q2 adjusted EBITDA increased 161% to $6.6 million year-over-year. Moving on to a review of the cash flow and balance sheet, our cash balance was $4.2 million at the end of the quarter versus $8.4 million at the beginning of the year. In addition, we had $7.1 million available on our line of credit. We used 3.8 million in operating cash flow during the first half of the year. The use of cash was primarily related to investment in working capital to support the significant growth we had delivered sequentially and year over year. While our June 30 receivable balance was larger, I would point out that the collectability of our receivables is within our normal expectations and DSOs are within our historical range. Of note, we have had several new customers that have ramped quickly during the first half of the year. In particular, our industrial customers were onboarded with extended payment terms. Since the end of the quarter, we have been able to transition those terms to a more typical payment schedule, which we expect will cycle through during the fourth quarter. As such, we expect to generate positive cash flow from operations during the second half of the year. That is, of course, barring any significant acquisition or meaningful step-up in organic growth from the current run rate. During the first half of 2022, CapEx was $402,000, and we utilized approximately $3.1 million in cash to finance a smaller acquisition during the first quarter. At the end of the quarter, we had $71.2 million in notes payable versus $67.9 million at the beginning of the year. That increase primarily reflects the financing for the acquisition that we completed during the first quarter. And at this time, I'll turn the call back to Ray.

Thank you, Lori. I'll start off the rest of my comments with some thoughts on the resilience of our business model and how we've continued to perform well in a weak economic environment. We have a stable annuity base of revenue with our existing clients. Simply put, our waste and recycling services are essential and our clients' businesses cannot function without the ongoing proper disposal of the various waste streams they produce. By delivering truly differentiated and value-added service, We've created strong and ongoing customer relationships with opportunities to continue to add services and geography to our installed base. On the cost side, we were able to offset inflation and other cost pressures with flexible contracts that allow us to pass through increases in costs such as fuel surcharges. As a result, cost pressures during this quarter had limited effect on our profitability. I will also point out that with the growth and the scale of our business over the last two years, We further diversified our client base and end markets so that the strength in one area is able to offset weakness in another. Year-to-date, despite the economic environment, we continue to see stable activity levels across all of our end markets. As a result of these factors, our core business remains strong and should continue to provide a steady stream of profit and growth going forward. Speaking of growth opportunities, I feel very good about the organic growth we have in front of us. Within our installed base of customers, we continue to use a land and expand strategy to deliver growth. This strategy has consistently delivered a base of organic growth for the last five years. We added several new service capabilities with our recent acquisitions, and we're actively introducing those new services to existing clients. By adding new services and geographies, we feel confident that the existing customers will continue to provide a major contribution to organic growth for years to come. On top of growth from existing customers, during the last couple years, we've improved new client targeting and are closing the right new clients. Our sales and marketing team and their leadership are performing well. During the second quarter, we had several new customers that we've discussed in previous calls that have ramped significantly from the first to second quarter. As of the end of the second quarter, we're now fully deployed with one customer that will produce eight figures in annualized revenue going forward. This ramp was faster than we anticipated. We have other new customers that will likely take six to 18 months to fully ramp, which is in line with our expectations. I want to point out that these new customers will provide a stable source of business for years to come and a base of organic growth for at least 12 to 18 months as we roll out services across their footprints. Regarding new clients in 2022, we are continuing to add new prospects to the funnel and several large opportunities across multiple end markets are working their way through our pipeline. I remain confident that we will have success as securing sizable new clients during 2022. I would also note that these are large opportunities and a win with any one of them can provide meaningful growth and maturity. As we discussed in last quarter's call, we have been very busy integrating to RWS and InStream, the large acquisitions we made at the end of 2021. We've made significant progress this past quarter, particularly with the back office processes that Lori mentioned earlier. We've been actively introducing and cross-selling service offerings. We have been working with vendors to optimize efficiencies and gain benefits of scale and scope. We're also working to incorporate sales and operating processes that we've developed at Quest, By incorporating the same types of operational discipline we've established at Quest, we believe that there are opportunities to enhance their margin profile. We're on track to complete the integration process over the next nine to 15 months. I would like to reiterate that acquisition integrations don't necessarily follow a quarterly schedule. We're pleased with the synergies we've generated in Q2, but again, we encourage you to use our first half of the year as a basis to forecast our performance for the rest of the year. We continue to evaluate M&A transactions. I want to reiterate 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 21 where we find several good deals that fit our criteria, but there may be periods when we don't find any. I want to know that M&A growth is not a growth strategy by itself. M&A will continue to be a driver for growth for our business, but it's only one of three growth drivers. The other two are penetrating existing clients and adding new clients. Regarding our outlook, overall, our positive outlook for profitable growth has not changed. In the second half of the year, we expect continued positive momentum. We managed tremendous growth in the first half and have been successfully ramping new customers and integrating acquisitions. Now that we have at least partially digested this growth, we expect to return to operating cash flow generation in the second half of the year. Pressure to improve sustainability, increasing regulation, 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 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're investing in personnel, technology, and processes to further grow gross profit dollars, enhance client service levels, and ultimately expand the bottom line profitability. We expect acquisition integration to provide incremental contribution from both increased efficiencies and cross-selling. Acquisition activity is continuing, and we expect it to be an ongoing contributor to growth. Based on all these factors and with the business we have in hand, we are optimistic we'll continue with positive momentum for the next several years. I look forward to keeping you updated on our progress. We now, like the operator, provide instruction on how listeners can queue up for questions. Operator?

Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad. Star 1 for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star 1 for questions. We'll pause a moment to assemble the queue. We'll take our first question from Aaron Spachala with Greg Hallam. Please go ahead.

Hi, Ray. Hi, Lori. Thanks for taking the questions.

Hi, Aaron.

Hi. Maybe first on the procurement and vendor relations side of things, can you just give us an update on the evolution there and how that's helping on the margin side and your servicing abilities going forward?

Sure, Aaron. Procurement, well, vendor relations and procurement are kind of synonymous in this scenario. They've been moving us forward for over five years now, and it continues to ramp. We've invested in more personnel. And I think we're really seeing some benefits through these acquisitions we've made, taking some of the efforts of that sourcing group and starting to impact costs on their side as well. So if that answers your question, I mean, it's actually a bigger contributor now probably than ever.

Right. Okay. Yeah, no, and that's what I was kind of getting at, just looking at the performance in the quarter. You know, maybe second, just on some of the recent legislation out in California and the Inflation Reduction Act, can you maybe give us an update on how that might impact your business going forward?

I'm not really sure. It should be stable. I mean, I say I'm not sure. I don't see some real impact pieces at this point, Eric, is what I mean. It should be very stable and continue to move it forward.

Right. Okay. And then maybe last one for me. You know, just thinking about the gross margins on the new organic wins, you've kind of said initially lower as you bring them on, grow over time. Can you just kind of characterize where we are in that process and kind of the efforts and the ability on your end to kind of shorten that time frame, just looking at the difference between the first quarter and the second quarter?

Yeah, thanks, Aaron. First, I would say, honestly, it's happened faster and the margins are higher now than I would have expected them to be at this point through the ramp. So that actually circles back to your first question on the efforts for our sourcing group, finding the right subcontractors and the right agreements to put those margin structures in place. I've got to give them all the credit. So the answer to your question is it's actually higher than we expected at this point. And, you know, I believe the sourcing group has done a fantastic job there.

But I think that what's reflective is really the six-month margin. Yeah. You know, on a more ongoing basis, don't you?

Well, yeah, on a larger scale. I think the question might have been specific about that industrial client. And, Aaron, clarify your question for me, would you? I want to make sure I'm giving you the right input. Was it on the new clients or the – or the overall margin structure?

No, I mean, I think it's good. It's a little bit of both. I mean, just on the new industrial client sense ramping, but also just overall as well as you kind of look at integrating, you know, the new customer wins over time as well.

Yeah, I think to Lori's point, we look at blended margin over the first two quarters in a macro. And then when you look at some of that specific ramping we were talking about with some of these large clients, they are moving up quite well. well above, actually above our expectations currently.

Understood. All right. Thanks for taking the questions and congrats on the quarter.

Thanks, Aaron.

We'll take our next question from Chip Moore with EF Hutton. Please go ahead.

Good evening. Thanks. He's Ray and Lori.

Hi, Chip.

Hi, Chip. Congratulations, Lori. Thanks for your help and obviously best wishes. Nice to Thanks to go out in a good quarter and obviously you'll be around to help. Thank you.

Thank you. I'm glad we're able to deliver.

Yeah, exactly. So I guess on the organic funnel, it sounds very strong. Ray, I think you talked about, you know, some prospects there that could be quite material. Do we think about these as sort of, you know, seven to eight figure type potential wins? And can you say how far some of, along some of these potential deals are and when one could get over the finish line?

Yeah, thanks, Chip. It's a great question. You know, when we look at pipelines, I will tell you, one, the quality of the folks that we have in there, folks meaning prospects, there's probably one, let's see, I've got to count my figures again and make sure I get it right, eight-figure possibility in there. Definitely all million-dollar-plus But there's some real strength in there, and they are slow developing. There's a lot of complexity there relative to all the waste streams. But hopefully we're getting near the end of that on some of those and can pull them through. So I expect to continue to have a really nice organic new client acquisition as we move forward.

Yeah, that's helpful, Ray. Back to the margins question. Discussion, is there a way to think about just in the quarter itself? Uh, what was sort of, um, you know, favorable. Mix in the quarter versus more ongoing on integration and. Some of the other efforts that that we should see moving forward versus what was sort of. You know, quarter to quarter about variability.

Yeah, Chip, it's a real mixture. 1st off. I want to emphasize that there's a real mixture of things that. contribute in there. And I think we articulated those during the call. So we don't really break it down between that, but I do want to point back to these industrial clients that are ramping up and the fact that they are largely impactful. And as that interest, I mean, that margin percentage has been going up with them, it helps lift the whole average up. So we have seen that come up some. We did have some maybe one-time positive impacts with some catch-up billing, some new customers onboarding, things like that, that we therefore, as we looked at the whole bucket, we're looking at the margin percentage more from a six-month perspective, if that helps guide you. So there was a little bit of everything in there. There's some good things that are going to continue to keep it at that more like the 17.5% that we saw for the six months. So we do feel comfortable about that. And hopefully that answers your question.

Yeah, no, that's very helpful. No, that's perfect, Lori. Okay, no, I think I'll have that in the queue and let others ask questions. Again, congrats and thanks.

Yes, thank you very much, Chip.

Thanks, Chip.

We'll take our next question from Gary Sweeney with Roth Capital. Please go ahead.

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

Hey, Jerry.

Hi, Jerry. Hey, and Lori. It's been a great, what, six, seven, eight years, so I'm sure we'll stay in touch. I'll just jump right into the question. All right. Ray, I mean, you talked about, like, three areas of growth, right, penetrating new customers, new customers and acquisitions. But, you know, your footprint continues to grow, I guess, geographically and service-wise and on the service side front. When you look at things, is there a service that – that you would like to add to the space that could really drive additional growth that maybe you don't have today? And can you create that organically, or would you acquire it, or do you have enough on your plate with growth in general as is and you're not necessarily looking like that?

Yeah, I'll try to answer your question, Jay. We handle a lot of services. I'd have a hard time naming them. I think it's over 100 as far as various waste streams. but there's still more we can add, and we've added some, like most recently with RWS, we picked up a few. Mostly it's variations on existing services we have, maybe adding some new vendors. I think the better question would be, out of the services we have, which one would I really like to see grow the most? And I think the best opportunities probably, they're all great opportunities, but food waste just seems to be, it has a lot of momentum, visibility, It's a huge generator of landfill-filling material, and the vast majority of that organic waste doesn't need to go there. And so we're working very hard to expand that part of our business along with everything else. But I see that as a really growing line for us as we move forward, Jerry, in general. I really do. And as far as acquiring it versus – I think we have it now. Yes. We'll continue to move. One of the criteria for acquisitions, and we have a number of them, criteria is that we really would like it to be additive either in the services we provide or that we add to our portfolio or the end markets that it represents, that kind of thing. So I would anticipate continuing down that criteria. And if we add new services through it, we take advantage of it as much as we can. I'm really proud of what the team's done with some of our RWS's capabilities that we didn't have as far as already adding it to our portfolio clients. That type of cross-selling and in-selling, if you will, just accelerates the value return on the investment.

Shifting gears a little bit and maybe looking a little bit further out on the curve, what about technology and sort of enhancing Quest's value proposition? Obviously, we have the vendors and pricing. you know, just expertise and disposal, but what about some of the maybe ways tracking and value add that you can bring back to some of the customers we've spoken about in the past? Is that an opportunity at some point?

I swear, Jerry, you're reading our notes. We view that as a tremendous opportunity. We have been and we've been doing it, but we can really accelerate and we plan to accelerate our data reporting You're asking about technology relative to customer-facing, enhancing our value, as I heard. Yeah. We're investing in expanding that. We really feel it's vital. And we think we have a distinct advantage, not only in the technology itself. I mean, a lot of folks can buy a platform of technology. But the most important thing is the data that feeds it. The fact is, since we handle all the waste streams being generated by these clients from Motor oil to scrap metal to solid waste to food waste to plastics to carboards. The fact that we handle all of those materials, we have all that data. That data we report back to clients in a user interface that's actually quite timely and very manipulative and customizable. So we've been singing that song pretty good, Jerry, and we're going to keep singing it louder because I think it's one of the biggest distinctions we have. Lori, you want to add to that?

Well, yes, not only is it very useful for business decision making, it's, you know, incredibly important for their ESG reporting to get the uniformity of volumes, the uniformity of materials, the uniformity of all these different services across literally every zip code in the United States. You roll that up to the variety of services we do, You roll that up into also all the documentation we deliver and all the regulatory compliance that this also supports. And it's a very compelling package that really drives the value of our offering. So I just wanted to add a little bit there.

Oh, that's really good. Good point.

Great. All my other questions have been answered. So, you know, again, congrats, Lori, on retirement. Congrats for a great quarter for the Quest team. Thanks.

Thanks, Jerry. Thanks, Jerry.

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

Hi, Ray and Lori. Thank you for taking my questions.

Hi, Greg.

Hi, Greg. First, I want to say thank you, Lori, for your years of hard work and We're really thankful for you, and we're sad to see you moving on. But we know you'll be here helping whenever Ray and the team need you.

Absolutely. And it's really been a pleasure to work with many defined people, and that really does include our investors also.

Excluding me. So just two questions. The first was, I think this was one of your best calls. We've been invested for three and a half years now, and I thought your prepared remarks were just excellent. First, I thought you had a great quarter, and I was excited to hear. I think, Ray, you said something like the bar to adopt recycling services is becoming easier to clear or the bar is lowering. And I was wondering if it's possible for you to qualify what that looks like. Is it just easier to get in front of new customers, or what does that look like?

Well, I think the – well, first of all, landfills are a more and more dirty word on a regular basis. They continue to increase. But our competitors are helping us by not only that, but increasing the price of it on a regular basis, too. I think, Greg, what I was primarily referencing, I think, If you look at, and I know you do, some of the other waste companies' quarterly reports, you're seeing consistent increases in price at landfills as a margin driver for them. Well, obviously, since we don't go to the landfill with most of our material, that makes the competitive means of disposal a little more expensive, which makes us more advantageous. So really, I think what we do, Greg, is we get in front of customers, our prospects' customers, and we emphasize that point. And we continue to push in front of them that what they may not have thought was economically feasible yesterday is probably or more so economically feasible today. That's how we're utilizing that currently.

Thank you. That was helpful. And I have one more question. You made a comment something like after two years of pandemic disruption, we could see more normalized seasonal patterns in the second half of the year. And so the second half might more resemble the first half. So just making sure that I understand this correctly, if you did $148 million of revenue in the first half and $25.9 million of gross profit and $10 million of EBITDA, should I, like not asking for guidance, but is the interpretation that the second half should be similar to the first half in terms of revenue, gross profit, and EBITDA the right interpretation of what you were saying?

Yes.

Okay.

Yes, that's right. I mean, we do have lots of... Will you summarize it so well, Greg? So, yes, I think if you look back at what we said, we see a lot of positive influences. We also, though, are not, you know, we're concerned about a little bit of seasonality. But we feel very confident about being able to replicate the good first half that we've had. And that doesn't mean that some other good can't come with that. But that's what we indicated. That's correct, Greg.

Thank you. And if I can sneak in one comment, I was really thankful and excited to hear that you're focused on operating cash flow positivity As we get into the back half of the year, you guys have been growing so fast, it's really hard to generate cash through the kind of growth that you've seen. But I'm excited that you've taken steps to be focused on managing your working capital. And so thank you for doing that.

Thanks, Greg. It's an important part of the growth, having a strategy around that, too. And we feel really confident about where we're headed with that. I appreciate that comment.

Thank you.

We'll take our next question from George Melis with MKH Management. Please go ahead.

Great. Thank you. Hello, Ray and Lori. How are you? Hi, George. Hi, George. Hi. I wanted to make sure to get on the call to say thank you to Lori for your work and being a good guide to the street and to myself in particular. And I feel like I have to sort of sneak in a question. I can't just say that.

Thank you, George.

Maybe on the acquisitions, you've given some interesting details on their revenue contribution, cost of sales, so we can do the gross profit, and also sort of going down to the EBIT line. So the numbers are quite high. There's a massive improvement from the June quarter to the March quarter. And first of all, there's two questions there. What is driving that huge improvement? And two, whether the June quarter results are largely sustainable.

Yeah, so George, we have... emphasize that we have several different elements that have entered into the Q2 and it's not just from the acquisitions. I want to emphasize that we've had substantial growth across our customers within the core and some increases also within the acquired companies. So first off, it wasn't just the acquired companies. Second thing is we have had some initiatives as we've been going through second quarter to continue to combat inflationary issues and therefore have made adjustments as we went through the second quarter to maintain our gross margins and in some cases even improve them. So you have the driver of that, you have the driver of the mix of services which have changed as some of these big industrial clients have grown That changed our overall mix and added some substantial gross profit dollars too. In addition to that, we did have some integration opportunities that we were able to take advantage of in Q2, such as maybe finding some customers that were not being updated as rapidly as they could be, therefore improving the turn that we had on being able to get billings out to customers more timely. And so some of that also caught up with us in Q2. So that's why we're giving guidance more to look at the blend. We think that that's more indicative of the go forward and that we were the beneficiary of several elements during Q2 that helped us have such a good quarter.

Okay, great. Okay, thanks. Thanks for repeating all that. It's good clarification. Thanks a lot.

Thank you, George.

Thanks, George. I guess Lori got another chance to give you a good guide there, so that's good.

And ladies and gentlemen, this does conclude today's question and answer session. I would like to turn the conference back to your presenters for any additional or closing remarks.

Yeah, I'll take that. I want to thank everybody again for your interest in Quest. And I really, I try to do this every time. I want to make sure and thank the Quest team for the ongoing efforts to deliver There's tremendous value for our clients and our shareholders. They've done a tremendous job. All our initiatives are working well, and we've gained a lot of momentum in the recent quarters, and I can really feel it. I think you can, too. I feel like we're still in the early stages of our growth efforts, though, and we have a long road of profitable growth ahead. And I want to make sure I want to thank Lori again last time. I get a chance to do this in public. Lori, when we put these numbers together, she says she's going out with a bang. I think you guys would all agree that this has been a great quarter, great results. I'm happy Lori got to be here to report those. She was a huge part of those results, and I'm going to miss her a lot. I look forward to keeping you up to date in the quarters to come. Thanks again for your interest.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.