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spk05: that prior vendors were passing through that was not part of their service. With our technology and the industry knowledge of our team, we're able to catch these erroneous charges and get them removed. The previous vendor had followed this charge, allowed this charge to go through for years and simply did not have the technology or the people capable of uncovering it. Moving on to a discussion about growth. I feel very good about the organic growth we have in front of us. Over the past year or so, we have overhauled our organic growth machine and it is consistently producing multiple sources of growth, including the following. The first source of growth is from existing clients. As we've previously discussed, through the first half of the year, we've had three expanded agreements with existing clients. One of which is expected to produce more than seven figures in annual revenue. We had another significant win with an existing client in the automotive sector recently. Due to the years of trust we've built with this client, they've asked us to help them with a rather large project. This project will produce more than seven figures in revenue and we're able to offer a way for the client to maximize the value of this waste stream while at the same time minimizing volumes sent to the landfill. Our technology platform also allows them to track and provide an auditable data record for use in their sustainability reporting. The second source of growth is new clients. As we previously discussed through the first half of the year, we secured seven new client wins. Since our last earnings call, we've added two more for a total of nine new significant wins for the year. This is more client activity than ever in our history. One of these seven figure wins is for the client in the automotive service sector with 150 locations. It's a new client that switched from a competitor. Based on what we heard from them, the prior service provider could not live up to our standards for quality of service. And this new client has several peers of similar size utilizing the same vendor. We are proactively reaching out to these targets and expect to win additional new ones from that peer group. Second win is with a large food distribution company. We expect this client to produce seven figures in annual revenue and over time should grow to an eight figure annual revenue account. The food distribution market is a very large end market. It represents great opportunity for Quest. We encourage that in just a few months, we've already signed up our first two clients in this end market and we have several other prospects in our pipeline at various stages of discussion. The third source of growth is coming from the ramp of the new business we have already secured this year. As we mentioned before, for the new clients we've added year to date, third quarter revenue was approximately 60% of the full annual run rate we anticipate once they're onboarded. We're well on our way to onboarding the clients we added in the first half of the year and the two new wins I just mentioned will start onboarding in the December or January timeframe. Fourth source of growth is from our prospect pipeline. We've made new investments in our sales force, added new sales leadership, and added several proven sales executives to our team. In addition, we've been making investments in sales operations that allow our sales folks to spend more time on closing and less time on the more administrative functions such as proposals and lead generation. In addition, we've made an effort to shorten the sales cycle by simplifying our contracts and using our internally developed sourcing tool to turn around proposals more quickly. As a result of these efforts, we've grown not only the number, but the size of the deals in our pipeline. As evidenced by the new client wins this year, these investments in sales are clearly helping us to shorten the cycle and to create a better yield in converting proposals into agreements. I hesitate to estimate when the deals in the pipeline may close, but I can say that several very large opportunities have progressed to the final stages of approval and I'm confident that we'll be able to consistently add new large clients in the quarters ahead. Finally, the fifth sort of growth is not related to revenue, but directly related to growth and gross profit dollars. We have a large opportunity to drive GP dollar growth on the cost side by optimizing the business we have in hand. As we bring revenue onto our platform, we've proven our ability to optimize the cost of service through vendor relations and procurement management that drive our continued growth in gross profit dollars. Regarding our outlook, I wanna emphasize my conviction on our trajectory and the overall outlook for the company. We've made tremendous progress over the last several years and have never been more confident about our outlook for future profitable growth. The work we've done is centered on building a consistent and sustainable business focused on providing value services to our clients. The foundation is set for success and to build for value of our shareholders. I look forward to keeping you updated on our progress. We'd now like the operator provide instructions on how listeners can queue up for questions. Operator.
spk07: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment
spk08: please for your first question. Your first question is from Aaron Spachella from Craig Hallam, please go ahead.
spk04: Yeah, good afternoon, Ray and Brett. Thanks for taking the questions. You know, maybe first for me on the vendor management system, can you just kind of quantify the impact there in the quarter? And then just to confirm, it sounds like it's fully operational now. Is there any kind of carryover into the fourth quarter? And, you know, appreciate the commentary on the reduced error rate. I mean, it sounds like it should really help your process as you onboard.
spk01: Yeah, Aaron, the spread, I'll take that. On quantifying, it's a little difficult to do that because it leads into some other challenges on getting to a customer level on some other breakouts. But, you know, directionally, it's less than the million dollars we called out for the credits, but certainly significant enough to mention in terms of your second part of the question, just how that looks going into Q4 to your point. We do feel really confident on the implementation done to date. We are seeing a lot of good progress already this quarter through the first full month. We've seen significant reductions in error rate. So we do expect those costs to dwindle down. They won't be zero, but they should be much less impactful going forward. Did I answer all your questions?
spk04: Yeah, no, that's helpful. And then maybe second, I mean, you kind of talked about, Ray, with the pipeline, you know, shortening the sales cycle and then, you know, gave some details on onboarding. Can you just kind of talk about, you know, both of those, where those stand, you know, kind of looking to improve those given kind of the technology investments just in the additions to the sales force? Like, where do those stand today from a sales cycle and onboarding perspective and, you know, where can those get to?
spk05: Yeah, that's two things is bringing on new clients, the sales cycle and then of course the onboarding process, which is post contract. I will say the onboarding, as evidenced by nine new signings this year, I think that's ready evidence that our sales cycle has dramatically increased or sped up, excuse me, for us to be able to bring that many on in such a short period of time. We've never done anything close to that in the past. And I credit the sales team and I credit the tools that we're using for proposals now that the operations team is able to do. Significant acceleration. So I would say we've cut that sales cycle significantly back, which is great news. And on the onboarding side, again, it's really a great story that's kind of hidden by some of the results of the quarter. You measure onboarding both on the speed and the accuracy of it, but also primarily, I think on the client feedback. As we've mentioned before, these are operationally challenging things to change out hundreds and hundreds and maybe thousands of locations and service providers and equipment. The complexity is immense. And it was a largely manual process in past years. And now utilizing the tools that we have from a technology standpoint, I firmly believe that's why we're able to get the scores, I guess, the positive scores we're getting from these new clients in the onboarding process. So I think the onboarding process is faster and considerably more accurate. And the sales cycle has compressed significantly as well. So we're really encouraged on both of those fronts.
spk04: All right, thanks for that. And then maybe just last for me, any current thoughts on how the election, new administration and things might impact your business moving forward?
spk05: Thanks. Yeah, it's a great question, Aaron. And we've talked about that a lot internally long before this specific election actually, as we look at changes. What we've found in the area where we focus most on our sustainability is landfill diversion is where most of the impact from our activities show up. And the landfills themselves are predominantly regulated, managed, what have you, by states and municipalities, which aren't typically affected by federal elections. So overall, I think the decisions on whether it's really important for companies to maintain sustainability programs is driven more by investors than federal regulation and the demand for companies to have higher, more quality performance. So that's a long way of saying, Aaron, that we really don't anticipate the election having any changes at a federal level. The demand and the desire to divert from landfills at the local levels is higher, higher than ever. As you know, it's difficult to permit new landfills. There's less landfills today than there were yesterday and there'll be less tomorrow than there are today. So the emphasis on landfill diversion and sustainability, I think is less political and more practical than it has been in years past. But that's my opinion anyway.
spk04: No, that's helpful. Thanks for the color. I'll turn it over. Thanks, Aaron.
spk08: Your next question is from Owen Rickert from Northland Securities. Please go ahead.
spk02: Hey guys, can you dive a bit deeper into the land and expand sales and marketing strategy? And I know you guys did discuss the sales team, but is that optimized as of right now? Or is there still room to grow that team?
spk05: Oh, there's still, yeah. Well, we're focused less on headcount. Oh, and then I think that the overall capacity and efficiency, that being said, we've added and invested in headcount as we said, but I think a big part of it is the way we're structuring that. I mentioned SDRs, sales development reps that are doing a lot of the grunt work, if you will, on the front side to set up appointments and more of the admin stuff, which really creates significant capacity in your senior level sales team. So right there, you're able to add capacity or capability without even adding heads, but we have added several quality experience people to our team, along with the sales leadership that we've done this past year. So yeah, there's still room to expand. You find the right salespeople with the right experience and they represent you. We're always happy to look at those opportunities and we'll continue. The land and expand strategy really hasn't changed. It's just, it's doing well. One of the things I've, we've always anticipated getting in on one line or two and then grabbing more existing spend from the rest of them and we always have done a good job. I think our history is we've been able to generate mid single digit growth with existing clients,
spk06: almost
spk05: purely through the expansion program we're talking about. But that also seems to have improved lately with some of the technology advances we've had. When you have clients, large clients, national clients come on board and they announce a large expansion with you within two months of a launch, that's amazing. And it really adds a lot of credibility, I think, to the strategy and my hats off to the team that have positioned us where we can't have that kind of expansion with these clients.
spk02: Got it, got it, thank you. And then just secondly for me, how would you characterize the new business pipeline today?
spk05: That's actually a real bright spot, Owen, I'm glad you asked. The strength of our new pipeline is, it was beyond what I was hoping for a year ago. I think I mentioned in the call, we obviously have the new signings we talked about, but we have several really key targets that have moved toward the bottom of the funnel that we anticipate some good things happening in the relatively short term. But speaking with Perry, one of the things he's always focused on, Perry, our sales leadership, Perry Moss, is what is that level to, what does that middle of the pipeline look like to make sure that it's strong enough to continue to feed the bottom? And it's really reached a level of magnitude that we're all happy with as far as where it is in the funnel, what that funnel looks like. So the simple answer to the question is, I know I say this a lot, but it's beyond where I thought it would be at this point and continuing to get stronger.
spk03: Great, thanks Ray, thanks Brett. Thanks, Owen. The next question is from Greg Kitt from Biddle Family, please
spk08: go ahead.
spk06: Hi Ray and Brett, thank you for taking my questions.
spk05: Hi, Greg.
spk06: So we've had a couple quarters like this over the five and a half years we've been invested and you've figured out
spk00: how to
spk06: get to the other side of it every time thus far. And so this is a disappointing quarter, but it sounds like you have quantified the issues some outside of your control that should reverse some opportunities to get better. Maybe just to touch on the three areas that you highlighted for the reason for gross profit impact this quarter. The first was just a mix from some of your larger industrial customers. It sounds like just to be clear that there's not necessarily loss of service lines, but that's more a function of an economic slowdown with those customers, but you also believe there used to be Fortune 500 customers that if economic growth continues or reaccelerates at some point in those end markets that you would be well positioned to service those customers, is that fair?
spk05: That's a very good description, Greg. I think it's so important to draw a distinction between market share loss and volume of fluctuations, right? We haven't lost any lines. Our relationship is as strong as ever with these clients in that sector. We ride the tide with them sometimes, right? We take credit for the growth when they get generated and can we take a hit when those that happens? But no, these are Fortune 500 strong companies. They're not going anywhere. They're going through some, I would consider temporary volume restrictions that impact us, but our service levels have remained high and our relationships remain strong. So that's just a timing factor. So I think your assessment is very accurate.
spk06: Thank you. And could any of these customers, President-elect Trump has talked about wanting to de-emphasize near-shoring to focus on on-shoring, which is probably good for you because you don't have operations in Mexico to the best of my knowledge. Or is there any potential benefit if companies choose to bring some production on-shore rather than near-shoring within your customer
spk05: space? Yeah, I would go even further and say in general, on-shoring is going to be beneficial, whether it's this client or all of the clients. So no, you're accurate. We don't have operations in Mexico or overseas. So anytime there's production that's moved outside of our trade area, it's not a positive. So if there's more on-shoring and business grows within the 48, or within the US, that's gonna be beneficial for us.
spk06: Thank you. So then on the second issue on higher costs, I think Aaron asked a little bit about this, how to think about what that cost is. I think what I wanna make sure I understand is that it sounds like when you onboard new customers, you just need to make sure that that service is essentially as seamless as that transition is as seamless as possible. And so are the costs that you saw in Q3 something that you expect to continue to see as you onboard new customers? I guess I'm first focused on the new customers. That's probably something that you continue to see. Is that fair?
spk01: Greg, I'll answer that one. I think it's more, some of the challenge in Q3 is that we were bringing on a new system at the same time. We were doing record onboarding. So there was kind of a perfect storm in the quarter as we were learning the new system and working out the kinks and optimizing it. So we had that, that required some additional costs and then you had onboarding on top of that. So you really stressed a couple of areas there at one time. So I wouldn't think of that as kind of an ongoing cost in the future. I think it was more limited to just the uniqueness of what we were all trying to do in the quarter.
spk06: Okay, great. And I think you sized that at less than a million dollars, but material enough to call out.
spk01: Was that right? Yeah, I certainly wanted to call it out. It was a drag on the quarter. And again, to your point, we wanted to highlight that it was more temporary in nature as we get into the quarter. We have a lot of faith in the platform we built and the scalability. So we wouldn't expect to see big drive, big usage of cost as we bring new clients on.
spk06: Okay, great, thank you. And then I think the third bucket was on billing credits. This one was a little bit confusing to me. And so it sounds like some customers identified some issues in which they were being billed. It sounds like from vendors, those were being passed on to the clients, but was it your responsibility to kick out those charges that were inappropriate? Is that what the relationship was? No, let me try to
spk01: clarify a little bit. It's hard to get into a lot of detail on this without spending a ton of time on it, but they're unique in nature. This is an isolated customer group that's in a specific end market for us. And it's a unique billing structure in that. We're doing tenant billing, but relying on third party information and relying on the accuracy of that information. We got bad information as to who to bill and how much to bill. And with this model, it can have a pretty significant impact. All of those credits go straight to the bottom line. So, you know, we reviewed this, when we went through this process initially, we did do some extra diligence to verify the accuracy of what we got, but it just wasn't quite robust enough. We put in some extra filters to help validate some extra processes and controls around this. Largely think we have it contained going forward, but it was a larger issue in Q3 for us and kind of the result of the bigger initiative to do some overall vendor cleanup, I mean, tenant billing cleanup.
spk06: Okay. And so the customer is giving you the information on who to bill and you got bad information from the customer,
spk01: right? Yeah, that's correct. Bad or incomplete information. Yeah, it wasn't all bad.
spk05: A chunk of it obviously was.
spk06: Okay. And so some amount of misinformation or lack of information from your customer. And then I just wanna try to understand where does the billing credit come back to, hey, this came out of your pocket based on a customer error. I guess that's the piece that I'm confused about.
spk05: Well, you got the customer is really the landlord and the one we're billing is the tenant. So the information, so now you're into the debt, that's why it's a little confusing, is the definition of customer, right? So the billing was, it's a tenant bill situation. You bill tenants based on the information you get from your customer, which is the landlord, the management company. That information was not accurate. So since we billed it inaccurately, we had to reverse it as well, which is where the credit came from. Does that make a little more sense? And one of the things, great, Brett was pointing out, I think it's important to understand is the impact in this situation is significant because there's no reversing cost of goods with it. It's pure revenue, which has no associated costs. So it's pure gross profit dollars. You see what I'm saying? Okay.
spk06: And so does, in this case, where the landlord gave you bad information, essentially you have no recourse to the landlord to say, hey, you gave us this bad information, so we charged people inaccurately. Help me understand what, if anything, you can do to go back to the landlord and say, look at what you caused.
spk05: There's nothing we can do. I guess it's unfortunate, but we don't really have a recourse.
spk06: Okay. Okay. Yeah, it's a disappointing quarter, but so if I understand correctly, the billing credits, that should not recur, again, in the fourth quarter. So if we're looking at gross profit this quarter, we should see a $1 million reversal in the fourth quarter because that shouldn't happen again, if I understood correctly. And then on the vendor management system, there's some sequential improvement from this quarter from, it sounds like that doesn't occur in the fourth quarter. Are those statements both right?
spk01: I think those are directionally correct. Yeah.
spk05: Yeah, that should not be recurring to address your point. Okay.
spk06: Okay, if I can sneak two more in, unless there's somebody else in the queue, I'll hop out and come back.
spk03: Go ahead, Greg.
spk06: Okay, great. On the REFI, is there some way to think about, you talked about significant reduction in interest rates and that getting done by the end of the year. So that's good news. Is there some way to think about what that reduction could be, or would you rather wait until that's done and announced?
spk01: Yeah, trust me, we really challenged ourselves with giving a little bit more detail, but I think just without anything being complete, it wouldn't be appropriate for us to comment. But we certainly are excited about getting a deal done and being able to talk about the improvements in the new structure. It shouldn't be
spk05: long. Yes, it shouldn't be long, Greg, before we're able to give you that detail. And I echo what Brett said. So our excitement comes through the fact we added in, or we wanted to say more, but you know how it goes. But anyway, so suffice it to say, we really feel good about where we are in that, and we'll get you more information as available.
spk06: Okay, great. Thank you. And on DSOs, this year has just been a unique year, in part because of customer ramps. Is there, and Brett, I've heard you say there's no reason that you can't get back to the mid-60s again, and I would love to see it. That would be great. I'm sure you would love to see it too. And so in a higher, is there some reason that you look at it and you say, in your communications with customers, there's just some shift where you say, you know what, maybe DSOs are five days longer than they've historically been.
spk01: No, I still expect to get back to the mid-60s again, backing out, ramping new customers. Hopefully, we expect new customers continuously ramping. So maybe you get kind of a normal piece to that going forward or more normalized. But we saw some improvement this quarter. It got muted by ramping new customers, which is great. We'll take that offset. But we did see some improvement there. I know, I'm still hopeful. We've got some good progress. As we've talked about in the past, Q4 is always a little challenging, or can be, because we've got large customers that are trying to manage cashflow as well. We typically have good conversations and can still get all of our collections in, but you just never know what's motivating them when it comes down to the end of the year. But overall, we're still happy. We have good relationships. We have reined in some that got a little extended. And excited to see as we get into next year, making some improvement there again.
spk06: Thank you. I think if I could just end it for me with one more open-ended question. I think your stock is down 10%, 15% after the close today. And I think that this quarter doesn't reflect what you think the business can do. I would just, and I think some of your prepared remarks accomplish this, but give it back to you to kind of help us understand as investors, why you think some of these issues are resolved, why you think this isn't gonna happen going forward, or will happen on a lesser degree. There will obviously be issues over the next several years, and hopefully you continue to deal with them, and we'll get to the other side. But why should people wanna own the stock now, and help us, help investors that are looking at this, see that vision?
spk08: Yeah, Greg.
spk05: That's a big question, so I'm trying to break it down into pieces. First of all, the impact items we talked about, they fall really in two buckets, controllables and non-controllables. I can't tell you what's gonna happen with a couple of our key, with some of our customers in the industrial market that have faced some challenges. I can tell you that I believe strong companies, strong products, and they'll come back, and I think that our results reflect that. That was a lot of our impact this quarter. Then there's the bucket of controllables, which I think Brett did a pretty good job of explaining the one-off nature of those things. The credits were unfortunate, but they were there. It's an error that had to be corrected. And the onboarding costs that we've associated with bringing on new clients, and a lot of extra expenditure associated with making sure the service levels were pristine, I think that timed out with putting our new systems in at the same time, which you only introduce new systems once, typically. So there's a significant amount of non-recurring elements to that. I think what I would wanna tell you as investors is we know what happened this quarter definitively, and we have action plans against all the controllables associated with that. And as a matter of fact, most of them are already in place. We're talking about Q3 results now, and we're in early November. So a lot of that corrective action has taken place. So I would stress, Greg, from an investor standpoint, that you guys have been with us a long time. We've gone through some challenges, and we've moved forward a lot. We're stronger today than we were, and we have stronger people that know how to address and improve these issues, and it's being done. We feel like we're in a great marketplace. I will tell you, I was making a lot of notes during a lot of these conversations, and I just wanted to say that this is an important takeaway. We know what went wrong, and we have plans to address them to the extent that we can, and they're being taken place now. So my confidence level's really high on the non-recurring elements of that. But I don't want anybody to lose sight of the fact that we've added nine new key customers this year. We haven't even come close to that. It's not the same hemisphere where we've been in the past, and we've been onboarding them at an almost 100% success rate. Those formulas vote very, very well for what tomorrow looks like here. We've got a market that's very accepting of what we're bringing to the table that's evidenced by these new customers, and we've got new customers coming on that are excited about the superior service levels we're able to bring them, so our retention should be quite high, and our ability to drive incremental profits should be quite high. So with that, I understand the disappointment. I'm gonna go ahead and go straight to closing, I guess, if that's all right, since I'm kinda doing that, right? I wanna emphasize a few things. I never wanna forget this, so I'm gonna jump in and say I wanna thank everybody. The people here at Quest have been busting their tails. As we mentioned earlier, the activity level has been very high, and frankly, the demands have been very high, and they've been meeting those. So I'm grateful for those folks, and thank all of you for those efforts. The initiatives that we have in place are working well. Simply put, it's to increase efficiencies, drive the automation program, increase efficiencies, lever our GNA, which is taking place as we speak, and it's, I can't tell you, the Zero Touch Initiative has been a game changer for us in the last few weeks, and it's accelerating. We're seeing the results right now. And also, the fact of the matter is, we're bringing on high-quality customers. The pipeline is stronger than ever. It's not just talk. We've seen the signings, and we've seen the rollout. So I think the market's receptive for what we're doing is being proven. I think that we've improved dramatically what we're doing internally with our new systems impact. We've had some growing pains, and we've had some customers that have faced some challenges that composite just what you saw last quarter, but on a go-forward basis, our optimism, as you can tell, is quite high. So to Greg, I hope that answers your question. To the rest of you investors, we're greatly appreciative of your confidence in us sticking with us. We're committed to giving you the kind of results that you're expecting. And with that, we'll go ahead and end the call. Thank you, everybody.
spk08: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. I ask that you please disconnect your lines.
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