Quest Resource (NASDAQ:QRHC) executives said fourth-quarter results reflected a continuation of the soft volume environment that has weighed on the company for roughly the past year, with a sharper-than-usual seasonal slowdown and weaker volumes across several end markets.
Chief Executive Officer Perry Moss told investors the company experienced a “more pronounced sequential decline” than it has seen in prior years, driven primarily by lower manufacturing and industrial output. Moss said the company has not lost customers in its industrial end market, which he said supports management’s confidence that results should improve when that sector recovers.
Volume pressure extends beyond industrial
The weaker demand environment has also influenced new customer activity. Moss said the new-business sales cycle is longer than in recent history, with many prospective customers taking a “wait and see” approach amid economic uncertainty. Still, management described the overall pipeline as “very healthy” and said prospective clients have not dropped out, though many opportunities were pushed into 2026. The company reported better new business wins in the second half of 2025 compared with the first half, and said it remains engaged with prospects.
Operational initiatives and wallet share focus
With volumes under pressure, management emphasized actions within its control, including ongoing “operational excellence initiatives” intended to drive additional efficiencies. Moss said Quest’s operating foundation is strong and that the company has continued to streamline processes, enhance customer engagement, and improve execution across the organization.
A central theme of the call was expanding “share of wallet” with existing customers. Moss said the company is evaluating key accounts and prioritizing larger opportunities with higher probabilities of success. He said the company has broadened the number of waste streams handled for certain clients, added value-added services, and expanded coverage across large multi-location customers.
As an example, Moss highlighted the addition of “several hundred new locations” to an existing automotive services customer following that customer’s acquisition of another business, bringing the acquired network into Quest’s scope of service. Moss said the example demonstrates Quest’s asset-light model and vendor network, and he expressed confidence that these initiatives will contribute to higher levels of organic growth over time.
Management also reiterated a strategic intent to expand in non-industrial end markets—including retail, hospitality, grocery, and healthcare—to help counterbalance industrial seasonality. Moss said these markets should provide a better offset to typical fourth-quarter slowdowns in industrial production.
Fourth-quarter financial results
Chief Financial Officer Brett (no last name provided on the call) reported fourth-quarter revenue of $58.9 million, down 16% from the prior-year period and down 7% sequentially from the third quarter. He attributed the year-over-year decline to ongoing weakness among industrial clients and the impact of a divested mall-related business. Combined, those factors reduced quarterly revenue by $10.7 million compared with the prior year.
Sequentially, Brett said revenue from industrial clients declined by approximately $4.3 million from the third quarter, calling the sequential drop larger than expected due to a more pronounced reduction in industrial volumes than management anticipated. He also said reduced volumes across the broader portfolio limited the company’s ability to offset the industrial decline.
For the full year, Brett said that excluding industrial headwinds and the mall-related divestiture, the remaining two-thirds of the business delivered modest growth of $7.4 million, or about 5%. Moss added that across the majority of the business, Quest added approximately $29 million of new revenues versus the prior year, driven by the full-year impact of 2024 client wins, incremental wins in 2025, and wallet share expansion.
Fourth-quarter gross profit was $9.1 million, down 15% year over year and down 21% sequentially, resulting in a gross margin of 15.5%. Brett said the sequential decline was more pronounced than the outlook provided on the third-quarter call, driven by:
- Reduced gross margin leverage from lower overall volume
- Lower margins within the industrial sector, which he said contributed about $1 million to the gross profit reduction
- Approximately $0.5 million of one-time costs, largely implementation costs tied to new client launches and wallet share initiatives
Brett said optimization improvements and other efficiency measures partially offset the pressure. He also noted that margins and gross profit contributions from newer clients and wallet share expansions tend to be minimal in early months due to one-time start-up costs and the initial phase of what he described as a “land and expand strategy.”
SG&A expense was $7.7 million in the fourth quarter, down 24% year over year and down 17% sequentially. Brett attributed the year-over-year decline primarily to reductions in headcount, bad debt expense, and other costs tied to the divested RWS commercial property management business, along with workforce reductions implemented in the first half of 2024. He said savings were partially offset by severance and retirement expenses during the quarter.
Subsequent to year-end, the company finalized an agreement to sublet office space and secure a new, more cost-effective headquarters lease. Brett said the move is expected to generate approximately $400,000 in annualized cost savings in 2026. For the first quarter, he said SG&A is expected to be below $9 million, with the sequential increase driven by a return to normal bonus accruals.
Cash flow, debt reduction, and refinancing
Quest ended the quarter with $1 million in cash and approximately $37.7 million of available borrowing capacity on its $45 million operating borrowing line, according to management. The company generated just over $1 million in cash from operations during the quarter and $1.7 million of free cash flow.
Brett said Quest has worked to optimize payment and collections processes, paying the vast majority of vendors to term, shortening invoicing time, and continuing to improve cash collections. Days sales outstanding (DSOs) ended the quarter in the mid-70s, a modest increase from the prior quarter, though Brett said the trend remains downward from the low 80s a year earlier. He added that accounts receivable declined sequentially by $1.7 million and that working capital days improved to 11 days at quarter-end, down from 23 days at the end of the fourth quarter of 2024.
The company also paid down approximately $2 million of debt during the fourth quarter, bringing full-year debt reduction to $13.2 million, which management described as a 16.4% reduction for the year. Net notes payable were $64 million at year-end, down from $76.3 million at the beginning of the year.
On financing, Brett said Quest refinanced its asset-based lending facility with Texas Capital Bank, replacing a prior ABL with PNC. In addition, the company negotiated covenant easements with Monroe Capital, its term debt holder, covering fixed charge and leverage covenants across 2026 and into 2027. Management said the changes provide additional cushion to operate in a challenging environment and more flexibility to swap ABL debt for term debt to reduce interest expense.
Looking ahead, management said priorities for 2026 remain focused on growth with new and existing customers, margin improvement through continued operational initiatives, further development of the operating platform, improved cash generation, and continued debt reduction. In the Q&A session, Moss said operational KPI initiatives tied to order-to-cash, procure-to-pay, and source-to-contract processes remain on track, with KPI trends positive despite results being “masked” by weak customer volumes.
About Quest Resource (NASDAQ:QRHC)
Quest Resource Holding Corporation, together with its subsidiaries, provides solutions for the reuse, recycling, and disposal of various waste streams and recyclables in the United States. The company provides disposal and recycling services for motor oil and automotive lubricants, oil filters, scrap tires, oily water, goods destruction, food waste, meat renderings, cooking oil and grease trap waste, plastics, cardboard, metal, glass, mixed paper, construction debris, as well as a large variety of regulated and non-regulated solid, liquid, and gas wastes.
