Quest Resource (QRHC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and related notes for Quest Resource Holding Corporation for the periods ended June 30, 2025 and 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (In Thousands): | ASSETS (June 30, 2025) | Amount ($) | | :--------------------- | :--------- | | Cash and cash equivalents | 449 | | Accounts receivable, net | 53,660 | | Prepaid expenses and other current assets | 2,618 | | Assets held for sale | — | | Total current assets | 56,727 | | Goodwill | 81,065 | | Intangible assets, net | 9,316 | | Property and equipment, net, and other assets | 5,954 | | Total assets | 153,062 | | LIABILITIES AND STOCKHOLDERS' EQUITY (June 30, 2025) | Amount ($) | | :----------------------------------- | :--------- | | Accounts payable and accrued liabilities | 38,130 | | Deferred revenue | 146 | | Current portion of notes payable | 1,540 | | Liabilities held for sale | — | | Total current liabilities | 39,816 | | Notes payable, net | 69,680 | | Other long-term liabilities | 628 | | Total liabilities | 110,124 | | Total stockholders' equity | 42,938 | | Total liabilities and stockholders' equity | 153,062 | - Total assets decreased from $175.6 million at December 31, 2024, to $153.1 million at June 30, 2025, primarily due to the sale of assets held for sale and a decrease in accounts receivable[9] - Total liabilities decreased from $121.5 million at December 31, 2024, to $110.1 million at June 30, 2025, driven by reductions in accounts payable, deferred revenue, and notes payable[9] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $59,540 | $73,145 | $127,970 | $145,796 | | Cost of revenue | 48,503 | 59,613 | 106,002 | 118,228 | | Gross profit | 11,037 | 13,532 | 21,968 | 27,568 | | Operating income (loss) | 382 | 1,782 | (7,779) | 3,658 | | Net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Net loss per share (Basic and Diluted) | $(0.09) | $(0.07) | $(0.59) | $(0.11) | - Revenue decreased by 18.6% for the three months ended June 30, 2025, and by 12.2% for the six months ended June 30, 2025, compared to the prior year periods[11] - The company reported an increased net loss for both the three-month and six-month periods ended June 30, 2025, with the six-month net loss significantly widening to $(12.4) million from $(2.2) million[11] Condensed Consolidated Statements of Changes in Stockholders' Equity Changes in Stockholders' Equity (In Thousands): | Item | Balance, Dec 31, 2024 | Stock-based Compensation | Net Loss | Other Adjustments | Balance, Jun 30, 2025 | | :-------------------------------- | :-------------------- | :----------------------- | :------- | :------------------ | :-------------------- | | Common Stock (Shares) | 20,606 | — | — | 106 | 20,712 | | Common Stock (Par Value) | $21 | — | — | — | $21 | | Additional Paid-in Capital | $179,246 | $1,112 | — | $47 | $180,405 | | Accumulated Deficit | $(125,111) | — | $(12,377) | — | $(137,488) | | Total Stockholders' Equity | $54,156 | $1,112 | $(12,377) | $47 | $42,938 | - Total stockholders' equity decreased from $54.2 million at December 31, 2024, to $42.9 million at June 30, 2025, primarily due to the net loss incurred during the period[13] - Stock-based compensation contributed $1.1 million to additional paid-in capital for the six months ended June 30, 2025[13] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (In Thousands): | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $2,845 | $(844) | | Net cash provided by (used in) investing activities | $4,234 | $(4,847) | | Net cash (used in) provided by financing activities | $(7,026) | $6,325 | | Net increase in cash and cash equivalents | $53 | $634 | | Cash and cash equivalents at end of period | $449 | $958 | - Operating activities generated $2.8 million in cash for the six months ended June 30, 2025, a significant improvement from $(0.8) million cash used in the prior year[15] - Investing activities provided $4.2 million in cash, primarily from the sale of assets, contrasting with $4.8 million cash used in the prior year for equipment purchases[15] - Financing activities used $7.0 million in cash, mainly due to debt repayments, compared to $6.3 million cash provided in the prior year from net borrowings[15] Notes to Condensed Consolidated Financial Statements 1. The Company and Description of Business - Quest Resource Holding Corporation provides national waste and recycling services to large, multi-location businesses, focusing on maximizing resource utilization and supporting sustainability goals[17][18] 2. Summary of Significant Accounting Policies - The unaudited condensed consolidated financial statements are prepared under SEC rules, with the company operating as a single reportable segment managed at the consolidated level[19][21] - Recent accounting pronouncements, ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement), are being evaluated, with ASU 2023-09 not expected to significantly impact financial statements[23][24] 3. Sale of Assets - On March 31, 2025, Quest sold its mall-related business assets for approximately $5.0 million in cash, with potential additional milestone payments up to $6.5 million[26] - The company recognized a $4.4 million loss on asset sale in Q1 2025 and an additional $61 thousand loss in Q2 2025, with proceeds used for debt repayment[27] 4. Accounts Receivable, Net of Allowance for Doubtful Accounts - The allowance for doubtful accounts decreased from $831 thousand at December 31, 2024, to $751 thousand at June 30, 2025[29] Allowance for Doubtful Accounts Activity (In Thousands): | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Beginning balance | $873 | $831 | | Bad debt expense | $112 | $428 | | Uncollectible accounts written off, net of recoveries | $(234) | $(508) | | Ending balance | $751 | $751 | 5. Property and Equipment, Net, and Other Assets Property and Equipment, Net, and Other Assets (In Thousands): | Asset Category | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Property and equipment, net | $4,210 | $4,507 | | Right-of-use operating lease assets | $1,071 | $1,305 | | Security deposits and other assets | $673 | $683 | | Total | $5,954 | $6,495 | - Depreciation expense for the six months ended June 30, 2025, was $477 thousand, with $404 thousand included in 'Cost of revenue'[30] 6. Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets (In Thousands): | Asset Category | June 30, 2025 (Net) | December 31, 2024 (Net) | | :-------------------------- | :------------------ | :---------------------- | | Customer relationships | $4,589 | $8,617 | | Software | $3,792 | $3,247 | | Trademarks | $935 | $1,079 | | Non-compete agreements | $— | $3 | | Total finite lived intangible assets | $9,316 | $12,946 | | Goodwill | $81,065 | $81,065 | - Amortization expense for finite-lived intangible assets decreased to $2.8 million for the six months ended June 30, 2025, from $4.6 million in the prior year[32] - A $1.7 million impairment charge was recognized in Q1 2025 for customer relationship intangible assets, though a qualitative assessment found no goodwill impairment as of June 30, 2025[34][35] 7. Current Liabilities Accounts Payable and Accrued Liabilities (In Thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Accounts payable and accrued liabilities | $33,450 | $37,088 | | Accrued taxes | $611 | $626 | | Employee compensation | $2,230 | $1,323 | | Operating lease liabilities - current portion | $428 | $434 | | Miscellaneous | $1,411 | $428 | | Total | $38,130 | $39,899 | - Total accounts payable and accrued liabilities decreased from $39.9 million at December 31, 2024, to $38.1 million at June 30, 2025[36] 8. Notes Payable Notes Payable (In Thousands): | Debt Obligation | Interest Rate (June 30, 2025) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :---------------------------- | :------------ | :---------------- | | Monroe Term Loan | 11.94% | $51,363 | $54,000 | | PNC ABL Facility | 6.57% | $20,356 | $23,109 | | PNC Equipment Term Loan 1 | 7.33% | $1,431 | $2,729 | | PNC Equipment Term Loan 2 | 7.32% | $358 | $— | | Green Remedies Promissory Note | 3.00% | $296 | $564 | | Total notes payable | | $73,804 | $80,402 | | Less: Current portion, debt issuance costs, OID | | $(4,124) | $(4,137) | | Notes payable, net | | $69,680 | $76,265 | - Total notes payable, net, decreased from $76.3 million at December 31, 2024, to $69.7 million at June 30, 2025[37] - The company repaid $1.5 million on the ABL Facility, $1.0 million on Equipment Term Loan 1, and $2.5 million on the Monroe Term Loan using asset sale proceeds[42][47] - The company secured waivers and revised leverage requirements through amendments to its PNC and Monroe credit agreements after non-compliance with debt covenants in Q1 2025[45] 9. Leases - Operating lease expense for office space was approximately $177 thousand for the three months and $354 thousand for the six months ended June 30, 2025[50] Lease Related Assets and Liabilities (In Thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Right-of-use operating lease assets | $1,071 | $1,305 | | Total operating lease liabilities | $1,056 | $1,267 | 10. Revenue - Revenue is primarily generated from fees for waste and recycling services, commodity sales, and equipment rentals[54] Revenue Disaggregated by Source (In Thousands): | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Services | $56,314 | $70,123 | $121,507 | $139,925 | | Product sales and other | $3,226 | $3,022 | $6,463 | $5,871 | | Total revenue | $59,540 | $73,145 | $127,970 | $145,796 | - One customer accounted for 22.0% of revenue for the three months and 23.2% for the six months ended June 30, 2025[57] 11. Income Taxes Income Tax Expense (Benefit) (In Thousands): | Period | Income Tax Expense (Benefit) | | :----------------------------- | :--------------------------- | | Three Months Ended June 30, 2025 | $(22) | | Three Months Ended June 30, 2024 | $684 | | Six Months Ended June 30, 2025 | $(44) | | Six Months Ended June 30, 2024 | $743 | - The company recorded an income tax benefit of $(44) thousand for the six months ended June 30, 2025, compared to an expense of $743 thousand in the prior year, due to state tax obligations and a valuation allowance[60][61] - A valuation allowance of $24.8 million was recorded against deferred tax assets, with federal net operating loss carryforwards of approximately $18.3 million as of June 30, 2025[61] 12. Fair Value of Financial Instruments - Fair values of financial instruments approximate carrying values due to short maturities or similar borrowing rates, with variable rate indebtedness exposing the company to interest rate risk[62] 13. Stockholders' Equity - As of June 30, 2025, 20,712,204 shares of common stock were outstanding, with 45,261 shares issued to employees via the 2024 ESPP[63][64] Warrants Issued and Outstanding as of June 30, 2025: | Description | Issuance Date | Expiration Date | Exercise Price | Shares of Common Stock | | :------------------ | :------------ | :-------------- | :------------- | :--------------------- | | Exercisable Warrants | 10/19/2020 | 3/19/2028 | $1.50 | 500,000 | | Exercisable Warrants | 10/19/2021 | 3/19/2028 | $1.50 | 350,000 | | Total | | | | 850,000 | - Stock-based compensation expense for the six months ended June 30, 2025, included $220 thousand for stock options, $178 thousand for DSUs, and $594 thousand for RSUs[66][67][68] - 313,650 Performance Stock Units (PSUs) were granted under the 2024 Plan, with $128 thousand in compensation expense recorded for the six months ended June 30, 2025[69][70] 14. Net Loss per Share Net Loss per Share (In Thousands, Except Per Share Amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss applicable to common stockholders | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Weighted average common shares outstanding, basic | 20,933 | 20,507 | 20,896 | 20,446 | | Net loss per share (Basic and Diluted) | $(0.09) | $(0.07) | $(0.59) | $(0.11) | - Net loss per basic and diluted share increased to $(0.59) for the six months ended June 30, 2025, from $(0.11) in the prior year, reflecting the higher net loss[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operating results for the three and six months ended June 30, 2025, covering revenue, net losses, and liquidity Business Overview - Quest provides national waste and recycling services to large, multi-location businesses, supporting customer sustainability and ESG goals[75] - Primary revenue sources include fees for waste and recycling services, sales of recyclable materials, and product sales[76] Operating Results Summary of Operating Results (In Thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $59,540 | $73,145 | $127,970 | $145,796 | | Gross profit | $11,037 | $13,532 | $21,968 | $27,568 | | Operating income (loss) | $382 | $1,782 | $(7,779) | $3,658 | | Net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | Global Economic Trends - Macroeconomic uncertainty, including unemployment, inflation, tariffs, and geopolitical concerns, could adversely affect the company by increasing costs and hindering financing[79] Revenue Analysis - Revenue for the quarter decreased by $13.6 million (18.6%) to $59.5 million, and for the six months, it decreased by $17.8 million (12.2%) to $128.0 million[80] - The revenue decline was primarily due to the mall-related business divestiture (approx. $5 million for the quarter, $9 million for six months) and industrial market softness (approx. $11 million for the quarter, $17 million for six months)[81][82] - New client revenue of $3 million for the quarter and $8 million for six months partially offset declines, while customer attrition reduced revenue by $5 million and $9 million, respectively[81][82] Cost of Revenue and Gross Profit Analysis - Cost of revenue decreased by $11.1 million to $48.5 million for the quarter and by $12.2 million to $106.0 million for the six months, mirroring revenue changes[83] - Gross profit margin remained flat at 18.5% for the quarter but declined by 1.7% to 17.2% for the six months, primarily due to higher new customer implementation costs[84][85][86] Operating Expenses Analysis - Operating expenses decreased to $10.7 million for the quarter from $11.8 million in the prior year, but increased to $29.7 million for the six months from $23.9 million[88] - SG&A expenses increased for the six months due to $0.7 million in Q1 2025 severance and retirement expenses, partially offset by Q2 2025 headcount reductions[89] - Depreciation and amortization expense decreased due to lower intangible asset balances, while a $4.5 million loss on asset sale and a $1.7 million impairment charge were recognized in the six months ended June 30, 2025[90][92][93] Interest Expense Analysis - Interest expense decreased to $2.4 million for the quarter and $4.6 million for the six months ended June 30, 2025, primarily due to lower interest rates despite increased borrowings[94] Income Taxes Analysis - The company recorded an income tax benefit of $(22) thousand for the quarter and $(44) thousand for the six months ended June 30, 2025, primarily due to state tax obligations and a full valuation allowance[95][96] Net Loss and Loss per Share - Net loss for the quarter ended June 30, 2025, was $(2.0) million, and for the six months, it was $(12.4) million, significantly higher than prior year periods[97] - Net loss per basic and diluted share was $(0.09) for the quarter and $(0.59) for the six months ended June 30, 2025[99] Adjusted EBITDA - Adjusted EBITDA decreased by 47.8% to $2.7 million for the three months and by 58.7% to $4.2 million for the six months ended June 30, 2025[101] Reconciliation of Net Loss to Adjusted EBITDA (In Thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Depreciation and amortization | 1,500 | 2,605 | 3,246 | 5,101 | | Interest expense | 2,375 | 2,612 | 4,642 | 5,084 | | Stock-based compensation expense | 533 | 363 | 1,195 | 720 | | Loss on sale of assets | 61 | — | 4,491 | — | | Impairment loss | — | — | 1,707 | — | | Acquisition, integration and related costs | — | 19 | — | 61 | | Other adjustments | 208 | 370 | 1,379 | 719 | | Income tax expense (benefit) | (22) | 684 | (44) | 743 | | Adjusted EBITDA | $2,684 | $5,139 | $4,239 | $10,259 | Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share - Adjusted net income (loss) was $(0.8) million for the three months and $(3.7) million for the six months ended June 30, 2025, compared to positive adjusted net income in prior year periods[104] Adjusted Net Income (Loss) (In Thousands, Except Per Share Amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Reported net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Amortization of intangibles | 1,104 | 2,221 | 2,468 | 4,441 | | Acquisition, integration and related costs | — | 19 | — | 61 | | Loss on sale of assets | 61 | — | 4,491 | — | | Impairment loss | — | — | 1,707 | — | | Adjusted net income (loss) | $(806) | $726 | $(3,711) | $2,333 | | Adjusted net income (loss) per diluted share | $(0.04) | $0.03 | $(0.18) | $0.10 | Liquidity and Capital Resources - Working capital decreased to $16.9 million at June 30, 2025, from $30.7 million at December 31, 2024, with cash and cash equivalents at $0.4 million[105] - The company expects existing cash, $45.0 million ABL Facility availability, and cash from operations to fund operations for the next 12 months and foreseeable future[107] Cash Flows Analysis - Net cash provided by operating activities was $2.8 million for the six months ended June 30, 2025, a positive shift from $(0.8) million used in the prior year[110] - Cash provided by investing activities was $4.2 million, primarily from $5.0 million in proceeds from the sale of mall-related business assets[111] - Net cash used in financing activities was $(7.0) million, mainly due to $3.5 million in notes payable repayments from asset sale proceeds and $2.8 million net repayments on the ABL Facility[112] Inflation Impact - Inflation did not materially impact the company during the six months ended June 30, 2025 and 2024, with flexible pricing expected to offset cost increases[113] Critical Accounting Estimates and Policies - A qualitative assessment indicated a goodwill impairment triggering event due to share price decrease, but quantitative assessments found no impairment as of June 30, 2025[117][118] Recent Accounting Pronouncements - Refer to Note 2 for details on recent accounting pronouncements[120] Off-Balance Sheet Arrangements - The company has no off-balance sheet debt, similar obligations, undisclosed related-party transactions, or third-party debt guarantees[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no applicable quantitative and qualitative disclosures about market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[122] Item 4. Controls and Procedures Management evaluated disclosure controls and procedures as effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025, with no material changes in internal control over financial reporting[123][124] - Control systems provide reasonable, not absolute, assurance and have inherent limitations, including potential for error, fraud, collusion, or management override[125] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any legal proceedings that could materially adversely affect its business - The company is not aware of any legal proceedings that could have a material adverse effect[128] Item 1A. Risk Factors This section reports no new material risk factors applicable for the current reporting period - No new material risk factors are applicable for this reporting period[129] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds occurred[130] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[131] Item 4. Mine Safety Disclosures This section is not applicable to the company's operations - Mine safety disclosures are not applicable to the company[132] Item 5. Other Information Director S. Ray Hatch resigned from the Board of Directors effective August 8, 2025, with no disagreements cited - S. Ray Hatch resigned from the Board of Directors on August 8, 2025, with no disagreements with the company[133] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various agreements, certifications, and financial statements - Exhibits include various agreements, CEO/CFO Certifications, and financial statements in Inline XBRL format[134] Signatures The report was duly signed by the President and CEO, and Senior Vice President and CFO, on August 11, 2025 - The report was signed by Perry W. Moss, President and CEO, and Brett W. Johnston, SVP and CFO, on August 11, 2025[139]