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spk03: Thank you for standing by. This is the conference operator. Welcome to the Quest Resource Holding Corp third quarter 2023 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll 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 then zero. I would now like to turn the conference over to Dave Mossberg, investor relations representative.
spk10: Please go ahead.
spk11: Thank you, Kayleen.
spk00: This is Dave Mossberg. Your line's cutting out a little bit, so I'm going to go ahead and get started. Maybe you'll let me know if you can't hear us. I want to thank everyone for joining 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 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. We were 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 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 from market research firms and other resources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information. Certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding of 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 on a non-GAAP basis. Full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release. With all that said, I'll now turn the call to Ray Hatch, President and Chief Executive
spk06: Thank you, Dave, and thanks, everyone, for your interest in Quest. I want to start off by emphasizing how excited I am about what lies ahead for Quest in the next several years. We've made significant strides in laying the foundation for growth and earnings. This year, we've made a lot of positive progress building our growth engine and investing in technology to drive efficiencies to support that growth. In recent months, we've seen a noticeable uptick of the number and the size of opportunities in our pipeline. And we've seen faster than anticipated ramp up at one of our largest new customers. We also have a robust outlook for growth. In addition, at the end of third quarter, we completed the systems integration of RWS. We uncovered isolated issues related to RWS legacy systems, which resulted in cost of sales adjustments, mostly related to the activity prior to 2023. This is the primary cause of gross profit dollars from RWS being approximately $800,000 below our expectations during the third quarter. While RWS systems integration has been frustrating, it is complete and we've taken action to realize approximately $1.7 million in annualized SG&A cost savings beginning in the fourth quarter of this year. In addition, we're bringing online several technology enhancements to our platform. We expect these enhancements to improve efficiency, scalability, and continuously improve our client value proposition. In summary, I am more excited than ever with the underlying strength and the foundation of our business. I'm looking forward to realizing the resulting bottom line improvements from our investments in the platform. I'll now turn the call over to our CFO, Brett Johnson, for financial overview. I'll be back soon to discuss progress on our strategies.
spk01: Thanks, Ray, and good afternoon, everyone. A quick note about the sequential decrease in revenue. It was primarily related to commodity price fluctuations and normal quarterly volume fluctuations. As discussed on previous calls, commodity price fluctuations have not historically had material effects on gross profit dollars. Our customer agreements produce consistent gross profit dollars based on volumes that are not tied to commodity price fluctuations. For those of you new to the story, this is the reason we use gross profit dollars as a key metric to measure financial performance. During the third quarter, gross profit dollars were $12.4 million, an increase of 2% versus the third quarter last year, and a $1.1 million sequential decrease from second quarter. The sequential decrease primarily reflected $800,000 from the underperformance of RWS. To a lesser extent, sequential comparisons were affected by decreased contribution from an RWS client that has been acquired by another company. That company that acquired this RWS client manages waste disposal internally and decided to manage the RWS client similarly. As part of the process of fully integrating RWS onto our platform, we have gained efficiencies and have been able to reduce headcount and cut operating costs at RWS. We anticipate approximately $1.7 million in annualized cost savings beginning in the fourth quarter of this year. Sequential comparisons during the third quarter were also affected by a billing adjustment of approximately $400,000 from a quickly ramping new customer. While it did affect Third quarter results, it represents a very small percentage of this client's total billings and we maintain a strong relationship with this client. In fact, excluding this adjustment, the contribution from this client grew during the third quarter and continues to ramp in the fourth. Looking to the fourth quarter, we expect gross profit dollars to increase sequentially from third quarter and expect our performance to be more in line with our performance in the second quarter. We expect our growth in the quarter will ramp and will mostly offset typical fourth quarter seasonality. In addition, we will benefit from the cost cutting at RWS and overall efficiency gains beginning in the fourth quarter. Moving on to SG&E expenses, which were $9.6 million during the third quarter compared to $9.3 million during the same period last year and in line with our expectations. Looking forward, we expect lower integration costs and we expect to gain efficiencies from the investments we have made in our platform. We plan to continue to reinvest these savings into growth initiatives that further improve efficiencies and increase our ability to bring value to our clients. As a result, we expect SG&A expenses will be about $9.5 million in the fourth quarter. Going forward, we expect to begin to see the steady benefits of both cost reductions at RWS and investments in technology and process improvements, which will lower our costs and improve ongoing operating efficiencies. As gross profit dollars increase, we expect operating expenses to grow at a slower pace as we deliver improving operating leverage in the quarters to come. During the third quarter, depreciation and amortization was $2.3 million, which was relatively flat with the prior year. Moving on to a review of the cash flow and balance sheet. We are in good shape liquidity-wise and continue to enhance our liquidity. In this high interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management, carrying less cash and minimizing our borrowings on the line of credit. Our cash balance was $870,000 at the end of this quarter, and we have $5.4 million drawn on our $25 million operating borrowing line. This compares to $12.2 million at the beginning of the year. We will continue to evaluate our overall leverage and ways to reduce our overall interest expense. Year to date, we produced $6.6 million in operating cash flow, and third quarter marked our fourth straight quarter of positive operating cash flow. At the end of the quarter, we had $56.8 million in notes payable versus $70.6 million at the beginning of the year. To summarize, this represents a $14 million reduction in long-term debt year to date, which included $7 million of voluntary term loan prepayments. The balance of the reduction reflects normal principal payments and a lower borrowing on our asset baseline with P&C. Through our cash management efforts and the reduction in borrowings, we 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.
spk06: Thank you, Brad. While the cleanup adjustments for RWF have been frustrating and have made our quarterly comparisons challenging, I want to emphasize the conviction on our trajectory and 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 over the next several years. We are now running all of our business on a common platform. Through our integration efforts and other actions, we've been able to lower headcount and can now begin to realize greater efficiencies from these acquired operations. As I said earlier, we'll recognize approximately 1.7 million in annualized savings from RWS in the fourth quarter. In addition, we expect to continue to lower overall operating costs and drive efficiencies across the operating platform. Let me make a brief comment about the macro environment and concerns over inflation and economic uncertainty. During the third quarter, we continue to see stable activity across our end markets. We manage cost pressures and fluctuation in the price of recycled materials. as well. The waste business is generally resistant to recessions, 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 create strong client relationships that endure during periods of economic weakness. Through our value add, we strive to have long-term strategic relationships for our customers and not have relationships that are transactional in nature. To illustrate that point, We recently reviewed the longevity of our top 20 clients and noticed the average engagement request was over nine years. We also recently signed a new five-year extension and expansion agreement with one of our largest and longest-standing clients. While our core business is strong, the one area where economic uncertainty has been affecting us has been the pace of adding new business, which is slower than we would have liked over this past year. With a portion of our new clients, the onboarding ramp has been slower than expected. With certain clients, waste disposal is managed at a local level, and in several of those cases, it's taken longer than we expected to roll out our programs approved by and being driven by the corporate level. We also have several large opportunities that are taken longer than expected to get signed. Anecdotally, these clients and prospects are telling us they believe strongly in our programs, but in some cases, other priorities have simply pushed back implementations. We don't have prospects falling out. They're just not moving as quickly as we anticipated. I would also note that this is not the case across the board and we're winning new business and we're still seeing growth from existing clients. Moving on to discussion about growth. I feel very good about the organic growth we have in front of us. We have multiple sources of growth that give us confidence in our ability to post double digit gains in gross profit over the next several years. We expect growth to come from onboarding activities of recent wins. In some cases, it can take 12 to 18 months to fully ramp clients. There are several new clients that are still in the process of ramping, which will provide embedded growth for at least the next year. While the pace of onboarding has been slower than we would like with some clients, we have others that are accelerating the deployment of our programs. As we discussed last quarter, we began onboarding a new client during September at a small portion of their 380 locations. In a short period of time, this client has validated our value proposition and is now asking to roll out services to all their locations faster than we had originally expected. In addition, we're being asked to handle a broader line of services than we had previously planned. With the acceleration of the rollout, we expect this could turn into an eight-figure revenue contributor closer to the end or to the shorter end of our 12- to 18-month timeframe. I should reiterate that this is a new end market vertical for us. There are a few large potential clients in this end market, and we are pursuing peers in this space. The services we provide for this client will have some overlap with our capabilities in existing waste streams, but also give us the scale required to add capabilities for new waste streams, and we will in turn introduce to other new clients. Regarding new business, during the quarter we had a win in the new automotive service client with a rapidly growing base of 50 locations. We expect this client to generate seven figures revenue and maturity. In addition, during the third quarter, we had significant wins with existing clients in the retail, automotive, and restaurant end markets. Our land and expand strategy has consistently delivered solid growth from our existing client base for the last five years, and we feel there's ample opportunities for continued growth from our existing clients for multiple years to come. We're making new investments in our sales force, which should also provide a driver for growth. On the last call, we spoke about adding a proven new sales leader. In addition, we are adding investments in sales operations that will allow our sales folks to spend more time on closing and less time on more administrative functions such as proposals and lead generation. In addition, we're looking to shorten the sales cycle by simplifying our contracts and using our new sourcing tool to turn around proposals much more quickly. Our new sourcing tool allows our staff to look across the entire footprint of vendors for qualification and pricing data. This tool reduces the time our staff needs to find optimal solution from days to minutes. These investments in sales should help us grow our pipeline, shorten the sales cycle, and create a better yield in converting proposals into agreements going forward. Another source of growth will come from our growing pipeline of opportunities. As we said in the release, in recent months, we've seen a noticeable uptick in the number and the size of the opportunities in our pipeline. There are several factors that are likely driving the improvement. The single biggest reason is related to having referenceable clients that can attest to our strong value proposition. As we've demonstrated our value, we have been successful in adding new clients, and it's been much easier to open the discussion with potential clients. I hesitate to estimate when or if these deals may close, but I can say several very large opportunities have progressed to the final stages of approval, and I'm confident we'll be able to add several new clients in the coming quarters. I also want to reiterate that we have a large opportunity to drive gross profit dollar growth and on the cost side by optimizing the business we have in hand. Over the last three years, we've more than doubled the size of our business, with about two-thirds of that growth coming from acquisitions and new clients. As we bring revenue onto our platform, we've proven our ability to optimize the cost of services through vendor relations and procurement management that drives our continued growth in gross profit dollars. Before I move to our outlook, I want to talk a little bit about the investment we're making in technology. Over the years, we built a technology platform that will be able to scale to the size of a much larger enterprise. The technology platform we've built has been the key deciding factor for several competitive wins and helped us maintain enduring client relationships due to the incremental value we provide. In recent years, we've stepped up investments in our technology platform so we can stay ahead and continuously improve crime value, efficiency, and scalability. We intend to introduce our new technology improvements during the first half of next year. These improvements will enable us to further automate and lower costs to process invoices and provide a major enhancement to our ability to scale. For example, this will allow us to further automate the processing of vendor invoices and achieve significant cost savings and margin improvements. Based on the progress regarding our outlook, based on the progress we've made, I'm extremely encouraged with the underlying strength of our business and the ability to generate profitable growth. We expect to end the year strong with sequential improvement in both gross profit dollars and EBITDA. We expect to be a strong crash flow generator in the year of 2023. We have multiple sources of organic growth. We will continue to drive operating efficiencies and to invest in capabilities. Pressure to improve sustainability, increasing regulation, and increasing cost of landfills continue to lower the bar for adoption of our recycling services. We have a tremendous white space of opportunity, and we're very optimistic that we will continue with positive momentum over the next several years. I look forward to keeping you updated on our progress. We'd like now for the operator to provide instructions on how listeners can queue up for questions. Operator?
spk03: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Aaron Spachala with Craig Hallam. Please go ahead.
spk04: Yeah, good afternoon, Ray and Brett. Thanks for taking the questions. Hi, Aaron. You know, maybe, hi. You know, maybe first for me, you kind of touched on it a little bit, but just with the uptake and kind of number and size of deals in the pipeline, it sounds like it's pretty broad-based, but can you just talk about some of the drivers behind that in any areas or end markets in particular?
spk06: Actually, there are several end markets here, and thanks for your question. Industrial continues to be a real opportunity for us, and there are some opportunities in retail as well. I think I mentioned in the remarks, referenceable clients has helped us quite a bit. But also, you know, we've had a lot of work going on and prospecting is starting to come to fruition. So the focus that our leadership team on the sales side has on putting a lot of great new prospects in the top is starting to prove out, and we're excited about that.
spk04: All right, good. Thanks for that. And then maybe, you know, just on the food waste and progranics, seeing numerous states start to implement kind of reduction goals on the food side and penalties starting kind of early in 2024. Can you just give us an update there on where conversations stand with customers and how you see this business contributing to growth going forward?
spk06: Yeah, sure. And you're absolutely right, Aaron. Food waste continues to be an area of focus and it continues to be probably the the biggest opportunity or target for diversion from landfills. We have some great customers in that space today, and we have some tremendous prospects that we're talking to as well. And to be honest with you, in many cases, grocers are really starting to look at opportunities to do more diversion than they did in the past based on those pressures that you were just referencing, Aaron. So I encourage more and more regulation and pressures. It speeds up the sales process, and we're encouraged by that.
spk11: All right, thanks for taking the questions. I'll turn it over. Thanks, Aaron.
spk03: The next question is from Jerry Sweeney with Roth Capital. Please go ahead.
spk11: Hey, Ray, Brett. Thanks for taking my call. Hey, Jerry.
spk07: Going back to the RWS and then I think the $400,000 charge for the ramp-up, Two different issues, but maybe looking at root cause. Is there any concern about processes, systems, et cetera, that you have to take a look at to make sure this doesn't happen again? Or, you know, how do we look at the mitigation strategies around this?
spk01: Hey, this is Brett. I'll take that question. Starting with RWS, you know, I wouldn't call these – broad-based. They were really isolated to two specific issues that were difficult to identify. You know, we've done a lot to work on our visibility within RWS before we brought them into our current environment, but we still had a few gaps there. These popped up as we went live in the new systems, and so we feel confident with the processes we have in place. being in our environment, managed through our accounting teams and our operational teams, that we've got much better visibility and consistency as we look at more of the recent numbers as we've gone live. And then to your other question on the quickly ramping customer, again, it's a fairly large customer. It's really a very small percentage overall, not systems related, not really a process. It was just an error that was made. And it was over a longer period of time that it was missed, and we had a true-up, and these things happen sometimes. And I don't want to diminish it. We're working on, you know, we don't want any, but we certainly don't see any broader-based concerns on these types of things.
spk07: Got it. Was the RWS in the, was the issue in the third quarter or was that a lingering issue from over time over the last couple quarters that you had integrated it?
spk01: Yeah, it was a lingering, sorry, it was a lingering issue. As we stated, most of it was related to activities prior to 2023. So kind of sitting in there and even most of that was non-cash.
spk07: Got it. Got it. And then on the sales cycle, it seems like some areas take a long time. I'm just curious if there's any industries that are moving, maybe the ramp up is going faster than you anticipated and some are slower. And in particular, maybe if you have a lot of referenceable accounts in one industry, is that sales cycle sort of faster than an industry where you have less referenceable accounts?
spk06: Yeah, referenceable customers definitely help speed up the process, Jerry. There's no question. It's almost like a due diligence that doesn't have to be performed by the prospect. So I don't think there's an industry-specific delay or improvement or in-market specific, I mean. I think it depends on where the prospect is in their decision cycle and how they do it. Some of them are more complex than others. Some of them have a ridiculously long, frankly, sign-off process that goes through numerous departments. Some of them are much more quicker than that. But I guess what I'm saying is I don't see that as in-market specific. It's more company culture specific on how quickly they make decisions.
spk07: You know, in some very large companies, you know, sometimes these opportunities for signing only come up over the course of one year or cycles. That's also part of it is just the the way these companies manage the outsourcing services that are also a way of looking at it.
spk06: If your question was larger companies, Jerry, would they take longer? Is that what you're saying? I couldn't hear you very clearly.
spk07: Yeah, essentially, yeah.
spk06: Okay. Yeah, well, it goes back to complexity, right? The larger the company, the more locations, the more waste streams, typically, the more, well, bureaucracy, I guess, that exists. So there is a pattern based on the size of the companies that larger companies take longer. No question.
spk07: Yeah. Final question, and then I'll turn it back to you. Any competition popping up? Obviously, I mean, you mentioned one client that went away, but that was internalized, right, and completely understandable. But just curious if you're seeing any competition even on the fringes or what's happening out there on that landscape. Yeah.
spk06: We talk about that quite a bit, Jerry. And as you mentioned, I appreciate you reiterating that. That lost client we talked about was strictly, they were acquired by somebody else and they took it internally, so it didn't have anything to do with us. And I should mention, I guess, that we have situations where our clients are buying other companies and we get growth out of it too. So it happens both ways. But competitively, I haven't seen a lot of changes. I've been watching to see if Our price point's going down, you know, aggressiveness, that type of thing, with economic conditions changing. And I really don't – we really haven't seen anything to that effect. It's a very competitive industry, as you know. I think it's pretty much stayed the same. I haven't seen a lot of changes.
spk07: Got it.
spk11: Very helpful. I'll jump back in on it, then.
spk10: The next question is from –
spk11: Okay.
spk03: I believe he said he would jump back on. The next question is from Samir Joshi with HC Wainwright. Please go ahead.
spk09: Hey, good afternoon, guys. Thanks for taking my questions. Sure. Based on RWS, it seems that the revenue loss also played into this quarter. It seems $6 million less than year-over-year growth here. Is there any reason for that lost revenue or can you just shed some light on that?
spk11: Yeah, I'll take a little bit of that.
spk01: So we've certainly, you know, we've got the commodities that run through that business as well. So I'd say a portion of that is certainly related to reductions in just overall commodity values. We did talk about the lost customer, so we got a portion of that in the quarter as well. And then the rest is probably related to some of the adjustments that were made throughout last year as well.
spk09: Okay. Some of my other questions have been answered, but just checking on... I think on the last call, you mentioned double-digit growth in gross profit and dollars and adjusted EBITDA for 2023. Are we still on track for that?
spk11: Yeah.
spk06: I mean, if you take out the exceptions that I think Brett did a really good job of laying out, I mean, we're there. But we're looking to continue that. The outlook is strong going forward. Definitely strong going forward in future quarters.
spk09: And then the last one. Was there any further principal payments made to Monroe? I think in the last quarter around $2 million was prepaid.
spk01: No, we did not make... another one subsequent to this quarter. We did talk at the end or in our Q2 earnings call that we had made one subsequent. So we did have a payment of $2 million within the quarter, but we talked about that one as being a subsequent transaction to Q2.
spk11: Understood. Thanks for that clarification. Thanks for taking the questions. Thanks, Samir.
spk10: The next question is from Greg Kitt with Pinnacle Fund.
spk03: Please go ahead.
spk11: Hi, Ray and Brett. How are you? Great. How are you, Greg? Good.
spk05: I wanted to ask a question about Brett's commentary. It sounds, if I got what Brett said correct, I think that Brett said he expects sequential gross profit increase in the fourth quarter and expects something similar to Q2. And so Q2 gross profit was 13 and a half. And is the right way to interpret that statement that you think Q4 is around 13 and a half?
spk01: I think that's kind of our baseline for, you know, just overall performance of the business, Greg. We've talked about, we've got some opportunities and some growth coming in as well. In Q4 of last year, We talked about some cyclicality or some seasonality that came in. That can really vary customer by customer. So there's a, you know, we don't have full visibility into how that's going to impact Q4. But just in terms of strength of business, we certainly look at Q2 as being much more reflective of the continued sequential performance. And you can get there basically with the adjustments we talked about. It gets us really closely in line with Q2.
spk05: Thank you. And I wanted to make sure that I understood how much the adjustment was to gross profit in the quarter. I think that you highlighted $500,000 of RWS was a gross profit impact and then was the $400,000 impact with the one fast-growing customer? Was that also a gross profit impact? So was it a $900,000 reduction to gross profit, or was it more?
spk01: No, that's – yeah, that's correct. It's about a $900,000 adjustment to gross profit that we took in Q3.
spk05: Okay, great. And so then – getting close to double-digit gross profit growth for the year if you add back $900,000 and do around $13.5 of gross profit for the fourth quarter, but maybe a little less this year is kind of how that looks to me. But I do hear you talking about your confidence in getting double-digit growth going forward, and you talked about You know, some of it is just a lot of different areas in which you can attain it. And so I would appreciate if you can help us understand how much of that do you think is coming from your existing customers like wins that are already in hand, how much of it is coming from just optimization, which you touched on, and then how much is there like a go-get where you need to go get a million dollars of gross profit to get to 10% or do you think that it's kind of already in hand?
spk06: I would say, yeah, that's a tough one to quantify, Greg, obviously, because there's a go-get factor in there, which is always hard to put your finger on. But I will say, first of all, that optimization that you talked about, the profit optimization is with existing clients. So And that's been an ongoing thing that Dave's team has done a fantastic job by lowering costs, leveraging costs, and lowering costs, and increasing the gross profit for a long time. And that's still a big, big contributor to us. But there's a portion to go get. I would go ahead and say I think more than half that is in the existing client opportunity. The go-get stuff's looking a lot stronger than it has been in the past. So the confidence level is pretty high, but We've got a big head start with the existing clients, Greg. And we've already got mapped out a lot of those things that draw that increase in gross profit. It's calendared and mapped out already on existing clients. So we feel good about that.
spk05: Thank you. And on the $1.7 million SG&A cost savings from RWS, you talked about seeing some of that in the fourth quarter. But I think I also heard you say that SG&A should be around $9.5 million. How much of that, and that's kind of in line with your prior commentary, how much cost savings from the RWS, $1.7 million a year, which is like $425,000 a quarter, how much do you think can fall into Q4 versus you start in Q4 and you'll see it in future quarters?
spk01: Yeah, most of it should be in Q4. We'll get a little bit of additional pickup after Q4, but most all of it will be in place. We've got a couple of other SG&A lines that are coming in and offsetting a bit of that, but overall, we expect the full amount to be realized in quarter four.
spk05: Okay. And so 1.7 million annualized like 425,000. So you, you've put this cost savings plan into place very early, like in the September time period is like September 1st or, you know, first, first couple of weeks of September, if you think you're going to get most of it in the fourth quarter, is that fair?
spk01: Yeah, it kind of had a rolling aspect to it, so this wasn't a one-time thing. But, yeah, we certainly, by the end of the Q3, had most of the savings already realized.
spk06: So it's important to note that this isn't a want-to-do. This is already done. Yeah. And we're given the annualized number, but the execution of the initiative is already completed. Okay. Okay, great. Thank you.
spk05: And then on the new customer that I think you said was going to start ramping September 1st, that sounded like that was going great. Is there a total number of locations, 380 locations, or is that just the size of the initial opportunity they gave you?
spk06: No, that's the number of locations. The size of the initial opportunity is, You know, a lot of locations are different sizes. You know, some are smaller, some are large. It's not uniform. So the number of locations is less important than the waste generated and the amount of it. So it starts out with one part of it, and we're adding waste streams as we go, and we're also adding new locations. And I'm really proud of the team that we have here that's convinced them that they need to, you know, accelerate and move forward with additional waste streams and locations as opposed to phasing it over the longer period of time. we were thinking it was going to be, frankly. There's still a phase-in aspect, Greg, but I feel pretty confident it's accelerated from what we thought it was initially.
spk05: That's awesome. And is there a way to think about the opportunity with some of those competitors, which it sounds like you think you're also pursuing? Are any of those in that bucket that I think you quantified, Ray, as something like far along the in the process or maybe at the closing stage of something. I don't remember the exact way you described it, but is there a way to think about how some of those other competitors are in the pipeline, where they are?
spk06: You mean, are we getting those prospects from other competitors? Is that what you're asking, Greg?
spk05: Yes, yes. Sorry if I said it poorly. I think that you have been – reticent to give a lot of detail about that specific company, this new customer that you have because there are other competitors in their same market that you're going to try to win as customers. And so I think that my takeaway has been that you're pursuing those customers. Are any of those kind of in that later stage In your prepared remarks, you talked about some of your customers being, you know, chunky and later in the pipeline. Are any of those competitive players to this new, you know, mystery customer? Are they further in the pipeline? Or how would you characterize where they are in the pipeline? Sorry, I rambled. Hopefully that was clear.
spk06: I understand your question, Greg. And I think you're going to understand that I continue to be reticent for competitive reasons to speak to that much detail. But, you know, there's a lot of opportunities that are created by other competitors, frankly, that aren't taking care of their clients as well as we think we can. But I'm probably not going to mention anything specific relative to that. I think you understand that.
spk05: Yep. And my last one, and sorry, I'll hop off and cede the floor, is have you explored, I think, on the last quarterly call you talked about, exploring opportunities to maybe refinance your debt. I can't, I believe that you said that, but I could be wrong. And I would love to hear, you know, Brett's remarks sounded like you guys are focused on reducing your interest expense by managing your cash well, and you've done a good job of that this year and by reducing the principal on your debt. I would love to hear how you think about your refinancing plans.
spk01: Hey, Greg, this is Brett again. Yeah, I'll take that. We did talk in Q2 that we were having conversations and we continue to have conversations and continue to be excited about the opportunities that we have for refinancing. We're taking a really slow, deliberate approach to it because we've got a lot of exciting growth opportunities that we've talked about during the call. And we want to make sure that whatever we set up is in place to really help support that growth over the longer term. So we are taking a little bit more time. It's certainly not because we don't have really good options. We continue to be really excited about potential partners that we've got out there. But just going to take a little bit more diligent time in making sure we get the right thing in place.
spk11: Thank you very much. Thanks Craig.
spk03: The next question is from Greg Malas with MKH Management. Please go ahead.
spk08: Hi, guys.
spk06: Hi, George.
spk08: A broad question and then maybe a more sort of detailed question. On the broad question, Greg, you talked about doubling over the last three years and about a third of that coming from existing customers. So if I do some very simple math, That suggests that you should be growing with your existing base by roughly 10% per year. But it seems a little high to me, and I wonder if that's about how, you know, where the numbers fall around 10% in terms of organic growth.
spk06: George, I'm going to answer your question that I believe I heard. Unfortunately, the connection is not great. But I think your question was around the doubling of our business and, you know, one-third came from existing clients, in essence. Yeah, that's true. And the fact that you did the math, and it sounds like 10% is a little high. Is that what you're thinking? Is that what you're asking, George?
spk08: Yeah, it is.
spk06: Or you're asking? Yeah. Yeah, exactly.
spk08: Yeah, it does. And you've got the goal going forward.
spk06: Yeah, it does seem high, but it's actually what this team has been doing. And that's growth in gross profit dollars, not revenue necessarily. And so we talked about the procurement initiatives, about continuing to leverage and optimize the waste services and create more value from the commodities. And the team's been doing that. So they've been doing that for many years. So, yeah, George, those numbers are accurate. And we're really thankful to have those long-term relationships with these great clients, and we're able to do that.
spk08: So as you go, as you look forward to 24 and 25 with the improvements in the platform that you're making, is that still what you expect in terms of gross profit dollars, in terms of organic growth? Are you sort of targeting 10% or how do you think about it?
spk06: We're targeting 10% overall in growth and plus, 10% plus. But we expect a pretty consistent contribution from the existing clients. The improvement of the platform is going to do a number of things for us, but it's probably going to impact SG&A quite a bit because of the automation type of elements of it and those types of things. So not necessarily as much of a gross profit type of indicator, but there are some gross profit pieces there too, like We mentioned a procurement tool that guys are able to use and identify better pricing and better locations in a shorter period of time. But I would look for the, well, I guess I'll answer your question with two answers. One, we have no reason to expect that contribution growth from existing clients to really change over the pattern it's had several years. And two, the technology platform is going to be really beneficial in a lot of ways, but a lot of it's going to come from scalability. and leverage internally on our operating costs.
spk11: Okay. Okay, great.
spk08: And then maybe one question for Brett. Brett, your working capital days, I guess the way I calculate them, are sort of roughly 15 days, and they've been pretty consistent there in 23. It's quite a bit better than 22. What do you expect going forward? Do you have a target in terms of working capital days or working capital dollars?
spk01: Yeah, we continue to focus on that as an opportunity. AR was up a little bit in the quarter compared to last quarter. We had some timing issues and related. We had some projects come on late. So we hadn't had a chance to collect those because they had happened later in the quarter. And then a little bit of delayed billings on the RWS piece as we transitioned the billing into our new system. Again, nothing real concerning there. But yeah, we continue to look for opportunities. It's tough on a target. You know, the one thing that's cautionary is we are working with very large customers who are trying to manage their working capital as well, and especially coming into the end of the year. They tend to hold payments as well. But it's certainly a focus, and we think there's some opportunities to get better there as well.
spk11: Okay, great. Okay, thanks a lot. Thank you, George.
spk03: This concludes the question and answer session. I'd like to turn the conference back over to Ray Hatch for any closing remarks.
spk11: Thank you, operator.
spk06: I just want to take this opportunity, guys. I want to reiterate our positive outlook. I want to make sure that I came across, as I intended, very, very confident. When you look at our business today and look forward, I don't think I've ever felt better about where we're headed. I mean, there's so many positive things in the forefront. So I'm very, very encouraged by that. I want to thank you again for all your interest in Quest. I'm really appreciative of our shareholders and the support that we get from you guys. And I want to thank the rest of the Quest team, I never want to forget this, for the ongoing efforts to deliver value to the client and to the shareholders. They put a lot of time and effort and work, and it shows in those client retention, client relationships, client contract re-signings, those types of things, They don't happen if you're not doing a good job, and these guys are doing a great job. I'm very appreciative of that. We have a number of key initiatives that we're working on, and we've really started ramping them up as we move into Q4. And I'm really excited about what they're going to do. They're going to be enhancements to our platform, enhancements to our ability to grow revenue and to grow gross profit, which should yield a greater EBITDA going forward. So that's kind of where we are. Again, excited about it. I hope you are too. Looking forward to keeping you up to date in the quarters to come, and thanks again.
spk03: This concludes today's conference call. You may disconnect your line. Thank you for participating, and have a pleasant day.
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