Quest Resource (QRHC) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Quest Resource Holding Corporation Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, acquisitions, and specific financial line items for Quest Resource Holding Corporation and its subsidiaries Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (Selected Items) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $870,233 | $9,563,709 | | Accounts receivable, net | $49,932,053 | $45,891,144 | | Total current assets | $53,548,232 | $57,765,276 | | Total assets | $170,439,918 | $181,491,049 | | Accounts payable and accrued liabilities | $40,916,726 | $32,207,461 | | Total current liabilities | $44,573,358 | $38,054,866 | | Total liabilities | $102,754,978 | $110,352,001 | | Total stockholders' equity | $67,684,940 | $71,139,048 | - Cash and cash equivalents decreased significantly by $8.69 million from December 31, 2022, to September 30, 2023[8] - Total assets decreased by $11.05 million, while total liabilities decreased by $7.6 million, and total stockholders' equity decreased by $3.45 million[8] Condensed Consolidated Statements of Operations This section outlines the company's financial performance over periods, including revenue, expenses, and net loss Condensed Consolidated Statements of Operations (Selected Items) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $70,425,425 | $73,358,293 | $219,036,423 | $221,785,249 | | Gross profit | $12,430,233 | $12,183,333 | $38,564,821 | $38,100,138 | | Operating income | $468,538 | $377,273 | $3,096,318 | $2,815,997 | | Interest expense | $(2,408,076) | $(1,911,989) | $(7,407,207) | $(5,057,400) | | Net loss | $(2,050,642) | $(1,686,335) | $(4,961,276) | $(2,720,414) | | Basic net loss per share | $(0.10) | $(0.09) | $(0.25) | $(0.14) | | Diluted net loss per share | $(0.10) | $(0.09) | $(0.25) | $(0.14) | - Revenue decreased by 4.0% for the three months and 1.2% for the nine months ended September 30, 2023, compared to the prior year periods[10] - Net loss widened to $(2.05) million for the three months and $(4.96) million for the nine months ended September 30, 2023, from $(1.69) million and $(2.72) million, respectively, in the prior year[10] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (Selected Items) | Metric | Dec 31, 2022 | Sep 30, 2023 | | :-------------------------- | :----------- | :----------- | | Common Stock Shares | 19,696,006 | 19,959,677 | | Common Stock Par Value | $19,696 | $19,960 | | Additional Paid-in Capital | $173,876,319 | $175,383,223 | | Accumulated Deficit | $(102,756,967) | $(107,718,243) | | Total Stockholders' Equity | $71,139,048 | $67,684,940 | - Total stockholders' equity decreased by approximately $3.45 million from December 31, 2022, to September 30, 2023, primarily due to net losses[12] - Additional paid-in capital increased by $1.51 million, driven by stock-based compensation and stock option exercises[12] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Selected Items) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $6,667,825 | $(4,318,893) | | Net cash used in investing activities | $(1,256,893) | $(4,396,589) | | Net cash provided by (used in) financing activities | $(14,104,408) | $7,381,516 | | Net decrease in cash and cash equivalents | $(8,693,476) | $(1,333,966) | | Cash and cash equivalents at end of period | $870,233 | $7,093,892 | - Operating activities generated $6.67 million in cash for the nine months ended September 30, 2023, a significant improvement from cash used of $(4.32) million in the prior year[14] - Cash used in financing activities was $(14.10) million in 2023, primarily due to debt repayments, a reversal from $7.38 million provided in 2022[14] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements Note 1. The Company and Description of Business This note describes Quest Resource Holding Corporation's business, services, and recent corporate structure changes - Quest Resource Holding Corporation and its subsidiaries provide national waste and recycling services to larger, multi-location businesses[17] - Services include collection, processing, recycling, disposal, and tracking of waste streams, along with data reporting for business operations and sustainability goals[17] - RWS Facility Services, LLC and Sustainable Solutions Group were merged into Quest and dissolved as separate legal entities in 2023[16] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting policies and principles applied in preparing the financial statements, including recent pronouncements - The condensed consolidated financial statements are unaudited and prepared in accordance with SEC rules, with certain GAAP disclosures condensed or omitted[19] - The company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), on January 1, 2023, which did not have a material impact on its financial statements[22] - Interim results are subject to seasonal variations and are not necessarily indicative of full-year results[21] Note 3. Acquisition This note details the company's acquisition of an environmental services company, including purchase price and allocation - On February 10, 2022, the company acquired an independent environmental services company in the northeast U.S. for approximately $3.35 million[24] - The acquisition was paid in cash and financed with a draw down on the term loan[24] - The purchase price was primarily allocated to customer relationship intangibles and goodwill[24] Note 4. Accounts Receivable, Net of Allowance for Doubtful Accounts This note provides details on accounts receivable and the allowance for doubtful accounts, including activity and balances Allowance for Doubtful Accounts Activity | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $2,095,947 | $1,728,974 | $2,176,010 | $840,522 | | Bad debt expense | $639,820 | $411,802 | $1,210,179 | $1,143,757 | | Uncollectible accounts written off, net | $(378,422) | $(63,129) | $(1,028,844) | $93,368 | | Ending balance | $2,357,345 | $2,077,647 | $2,357,345 | $2,077,647 | - The allowance for doubtful accounts increased to $2,357,345 as of September 30, 2023, from $2,176,010 at December 31, 2022[8][26] - Bad debt expense for the nine months ended September 30, 2023, was $1,210,179, an increase from $1,143,757 in the prior year[26] Note 5. Property and Equipment, Net, and Other Assets This note details the company's property, equipment, right-of-use assets, and other assets, along with depreciation information Property and Equipment, Net, and Other Assets | Asset Category | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :------------------------------------ | :----------------------- | :----------- | | Property and equipment, net | $2,237,547 | $2,623,704 | | Right-of-use operating lease assets | $1,998,975 | $2,385,870 | | Security deposits and other assets | $629,199 | $901,653 | | Total | $4,865,721 | $5,911,227 | - Total property and equipment, net, and other assets decreased by approximately $1.05 million from December 31, 2022, to September 30, 2023[27] - Depreciation expense for the nine months ended September 30, 2023, was $645,047, including $266,923 reflected in 'Cost of revenue'[27] Note 6. Goodwill and Other Intangible Assets This note provides information on goodwill and finite-lived intangible assets, including their balances and amortization Finite Lived Intangible Assets (Net) | Asset Category | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------------- | :----------------------- | :----------- | | Customer relationships | $23,553,645 | $29,441,145 | | Software | $1,934,805 | $1,067,874 | | Trademarks | $1,433,754 | $1,639,266 | | Non-compete agreements | $845,555 | $1,408,055 | | Total finite lived intangible assets | $27,767,759 | $33,556,340 | - Goodwill remained constant at $84,258,206 as of September 30, 2023, and December 31, 2022[29] - Net finite-lived intangible assets decreased by approximately $5.79 million due to amortization[28][29] - Amortization expense for finite-lived intangible assets was $6.8 million for the nine months ended September 30, 2023[29] Note 7. Current Liabilities This note details the company's current liabilities, including accounts payable, accrued liabilities, and deferred consideration Accounts Payable and Accrued Liabilities | Liability Category | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------------- | :----------------------- | :----------- | | Accounts payable | $37,120,877 | $28,744,858 | | Accrued taxes | $963,580 | $331,936 | | Employee compensation | $1,709,313 | $1,812,028 | | Operating lease liabilities - current | $493,048 | $489,938 | | Miscellaneous | $629,908 | $828,701 | | Total | $40,916,726 | $32,207,461 | Other Current Liabilities | Liability Category | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------------- | :----------------------- | :----------- | | Deferred consideration - earn-out | $680,502 | $1,957,255 | | Deferred revenue | $1,817,330 | $2,731,350 | | Total | $2,497,832 | $4,688,605 | - Accounts payable and accrued liabilities increased by $8.71 million, while other current liabilities decreased by $2.19 million, primarily due to a $1.2 million earn-out payment and reduced deferred revenue[31][32] Note 8. Notes Payable This note outlines the company's various debt instruments, interest rates, and repayment activities Notes Payable (Selected Items) | Debt Instrument | Interest Rate (Sep 30, 2023) | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------------- | :--------------------------- | :----------------------- | :----------- | | Monroe Term Loan | 11.94% | $53,656,156 | $61,073,151 | | Green Remedies Promissory Note | 3.00% | $1,235,332 | $1,637,970 | | PNC ABL Facility | 7.47% | $5,395,404 | $12,238,034 | | Total notes payable | | $60,286,892 | $74,949,155 | | Notes payable, net | | $56,786,013 | $70,572,891 | - Total notes payable decreased by $14.66 million from December 31, 2022, to September 30, 2023, driven by repayments on the Monroe Term Loan and PNC ABL Facility[34] - Interest expense related to borrowings for the nine months ended September 30, 2023, was $5,944,798, an increase from $4,097,400 in the prior year, primarily due to higher base interest rates[43] - The company has warrants outstanding to Monroe Capital to purchase 850,000 shares of common stock at an exercise price of $1.50 per share, expiring March 19, 2028[41][63] Note 9. Leases This note provides details on the company's operating lease assets and liabilities, including lease expenses Operating Lease Assets and Liabilities | Lease Item | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :------------------------------------ | :----------------------- | :----------- | | Right-of-use operating lease assets | $1,998,975 | $2,385,870 | | Total operating lease liabilities | $1,888,655 | $2,214,182 | - Fixed cost operating lease expense for the nine months ended September 30, 2023, was approximately $561,000, a decrease from $669,000 in the prior year[45] - Right-of-use operating lease assets and total operating lease liabilities both decreased from December 31, 2022, to September 30, 2023[48] Note 10. Revenue This note disaggregates revenue by source and discusses customer concentration and deferred revenue Revenue Disaggregated by Source | Revenue Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Services | $67,672,666 | $70,895,554 | $210,622,181 | $213,934,853 | | Product sales and other | $2,752,759 | $2,462,739 | $8,414,242 | $7,850,396 | | Total revenue | $70,425,425 | $73,358,293 | $219,036,423 | $221,785,249 | - Total revenue decreased by 4.0% for the three months and 1.2% for the nine months ended September 30, 2023, compared to the prior year[53] - Two customers accounted for an aggregate of 28.2% of revenue for the three months ended September 30, 2023[52] - Deferred revenue decreased to $1,817,330 at September 30, 2023, from $2,731,350 at December 31, 2022[56] Note 11. Income Taxes This note details the company's income tax expense, deferred tax assets, and net operating loss carryforwards - Income tax expense for the nine months ended September 30, 2023, was $650,387, up from $479,011 in the prior year, primarily due to state tax obligations[57] - The company maintains a full valuation allowance against deferred tax assets, totaling $15,942,000 at September 30, 2023[58] - Federal net operating loss carryforwards were approximately $6,900,000 at September 30, 2023[58] Note 12. Fair Value of Financial Instruments This note discusses the fair value of financial instruments and the company's exposure to interest rate risk - The fair values of the company's financial instruments approximate their carrying values[59] - The company is exposed to interest rate risk due to its variable rate indebtedness[59] - Contingent liabilities are measured at fair value using unobservable inputs (Level 3 of the fair value hierarchy)[59] Note 13. Stockholders' Equity This note provides details on common stock, warrants, and stock option activity, including stock-based compensation - Common stock shares issued and outstanding increased to 19,959,677 at September 30, 2023, from 19,696,006 at December 31, 2022[60] Warrants Issued and Outstanding | Description | Date of Issuance | Expiration | 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 Option Activity (Nine Months Ended Sep 30, 2023) | Activity | Number of Shares | Weighted Average Exercise Price Per Share | | :-------------------------- | :--------------- | :---------------------------------------- | | Outstanding at Dec 31, 2022 | 3,179,388 | $3.23 | | Granted | 152,500 | $5.50 | | Exercised | (240,783) | $1.87 | | Cancelled/Forfeited | (25,021) | $12.89 | | Outstanding at Sep 30, 2023 | 3,066,084 | $3.37 | - Stock-based compensation expense for stock options was $664,629 for the nine months ended September 30, 2023[63] Note 14. Net Loss per Share This note presents the calculation of basic and diluted net loss per share, including anti-dilutive securities Net Loss per Share (Basic and Diluted) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss applicable to common stockholders | $(2,050,642) | $(1,686,335) | $(4,961,276) | $(2,720,414) | | Weighted average common shares outstanding, basic | 20,059,528 | 19,368,192 | 19,984,890 | 19,297,636 | | Net loss per share: Basic | $(0.10) | $(0.09) | $(0.25) | $(0.14) | | Net loss per share: Diluted | $(0.10) | $(0.09) | $(0.25) | $(0.14) | - Basic and diluted net loss per share increased for both the three and nine months ended September 30, 2023, reflecting higher net losses[68] - Anti-dilutive securities (stock options and warrants) were excluded from diluted net loss per share calculations due to the reported net losses[67][68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and nine months ended September 30, 2023, compared to the prior year, discussing revenue, expenses, profitability, liquidity, and key accounting policies Forward-Looking Statements This section highlights the inherent uncertainties and risks associated with forward-looking statements in the report - The report contains forward-looking statements regarding future operating results, financial position, business strategy, and market conditions[69] - These statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ significantly[69] - The company does not undertake to update any forward-looking statements, except as required by law[69] Business Overview This section describes Quest's core business as a national provider of waste and recycling services to multi-location businesses - Quest is a national provider of waste and recycling services to large, multi-location businesses across various industry sectors[70] - The company offers customer-specific programs for waste collection, processing, recycling, disposal, and tracking, along with data reporting for environmental and sustainability goals[70] - Revenue is primarily generated from service fees and sales of recyclable materials, supplemented by product sales like antifreeze and windshield washer fluid[71] Operating Results This section analyzes the company's financial performance across key metrics like revenue, costs, and profitability Revenue Analysis This section examines the trends and drivers behind the company's revenue performance for the reported periods Revenue Performance | Period | 2023 Revenue | 2022 Revenue | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Three Months Ended Sep 30 | $70,425,425 | $73,358,293 | $(2,932,868) | (4.0)% | | Nine Months Ended Sep 30 | $219,036,423 | $221,785,249 | $(2,748,826) | (1.2)% | - The decrease in revenue for the quarter was primarily due to an approximately $6 million decrease at RWS and a $1 million decrease in recyclable materials revenues, partially offset by a $4 million increase in non-recyclable materials services[76] - For the nine months, revenues declined due to an $11 million decrease at RWS and a $7 million decrease in recyclable materials revenues, partially offset by a $15.5 million increase in non-recyclable materials services[77] Cost of Revenue and Gross Profit Analysis This section analyzes the cost of revenue and its impact on gross profit and gross profit margins Cost of Revenue and Gross Profit Performance | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $57,995,192 | $61,174,960 | $180,471,602 | $183,685,111 | | Gross profit | $12,430,233 | $12,183,333 | $38,564,821 | $38,100,138 | | Gross profit margin | 17.7% | 16.6% | 17.6% | 17.2% | - Cost of revenue decreased by $3.2 million for both the three and nine months ended September 30, 2023, aligning with the revenue decline[78] - Gross profit increased by $0.2 million for the quarter and $0.46 million for the nine months, with gross profit margins improving to 17.7% and 17.6% respectively[79] Operating Expenses Analysis This section reviews the trends and components of the company's selling, general, administrative, and depreciation expenses Operating Expenses Performance | Expense Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Selling, general, and administrative | $9,620,114 | $9,332,721 | $28,249,820 | $27,975,550 | | Depreciation and amortization | $2,341,581 | $2,473,339 | $7,218,683 | $7,308,591 | | Total operating expenses | $11,961,695 | $11,806,060 | $35,468,503 | $35,284,141 | - Total operating expenses remained relatively flat, increasing slightly by $0.16 million for the quarter and $0.18 million for the nine months[81] - Selling, general, and administrative expenses were mostly flat compared to the prior year periods[82] Interest Expense Analysis This section details the changes in interest expense, primarily driven by interest rates and debt levels Interest Expense | Period | 2023 Interest Expense | 2022 Interest Expense | Change ($) | | :-------------------------- | :-------------------- | :-------------------- | :--------- | | Three Months Ended Sep 30 | $2,408,076 | $1,911,989 | $496,087 | | Nine Months Ended Sep 30 | $7,407,207 | $5,057,400 | $2,349,807 | - Interest expense increased significantly by approximately $0.5 million for the quarter and $2.3 million for the nine months, primarily due to increases in base interest rates[84] - The increase was partially offset by reduced borrowings from voluntary paydowns on the term loan in the first nine months of 2023[84] Income Tax Analysis This section discusses the company's income tax provision, state tax obligations, and valuation allowance Income Tax Expense | Period | 2023 Income Tax Expense | 2022 Income Tax Expense | Change ($) | | :-------------------------- | :---------------------- | :---------------------- | :--------- | | Three Months Ended Sep 30 | $111,104 | $151,619 | $(40,515) | | Nine Months Ended Sep 30 | $650,387 | $479,011 | $171,376 | - The income tax provision is primarily attributable to state tax obligations for states with no net operating loss carryforwards[85] - The company maintains a full valuation allowance against all deferred tax assets, but believes a significant portion may be released within 12 to 24 months[86] Net Loss Analysis This section analyzes the factors contributing to the company's net loss for the reported periods Net Loss | Period | 2023 Net Loss | 2022 Net Loss | Change ($) | | :-------------------------- | :------------ | :------------ | :--------- | | Three Months Ended Sep 30 | $(2,050,642) | $(1,686,335) | $(364,307) | | Nine Months Ended Sep 30 | $(4,961,276) | $(2,720,414) | $(2,240,862) | - Net loss for the quarter widened to $(2.1) million from $(1.7) million, and for the nine months to $(5.0) million from $(2.7) million[87] - Operating results vary based on commodity prices of recyclable materials, volumes and mix of services, customer mix, and timing of acquisitions and integration[88] Loss per Share Analysis This section examines the basic and diluted net loss per share, considering outstanding shares and anti-dilutive securities Net Loss per Share | Period | 2023 Basic/Diluted EPS | 2022 Basic/Diluted EPS | | :-------------------------- | :--------------------- | :--------------------- | | Three Months Ended Sep 30 | $(0.10) | $(0.09) | | Nine Months Ended Sep 30 | $(0.25) | $(0.14) | - Net loss per basic and diluted share increased for both the three and nine months ended September 30, 2023[89] - The weighted average number of common shares outstanding increased to approximately 20.1 million for the three months and 20.0 million for the nine months ended September 30, 2023[90] Adjusted EBITDA (Non-GAAP) This section presents Adjusted EBITDA, a non-GAAP measure, to evaluate the company's operational performance Adjusted EBITDA Performance | Period | 2023 Adjusted EBITDA | 2022 Adjusted EBITDA | Change ($) | Change (%) | | :-------------------------- | :------------------- | :------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | $3,710,034 | $3,847,119 | $(137,085) | (3.6)% | | Nine Months Ended Sep 30 | $12,729,648 | $14,141,441 | $(1,411,793) | (10.0)% | - Adjusted EBITDA decreased by 3.6% for the three months and 10.0% for the nine months ended September 30, 2023[91] - Adjusted EBITDA is a non-GAAP measure used to evaluate performance, excluding interest, taxes, depreciation, amortization, stock-related compensation, and other adjustments[92] Adjusted Net Income and Adjusted Net Income per Diluted Share (Non-GAAP) This section provides non-GAAP adjusted net income and diluted EPS, excluding certain non-recurring or non-cash items Adjusted Net Income and EPS Performance | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted net income | $549,324 | $862,642 | $2,658,258 | $6,198,498 | | Adjusted net income per diluted share | $0.02 | $0.04 | $0.12 | $0.29 | - Adjusted net income decreased by 36.3% for the three months and 57.1% for the nine months ended September 30, 2023[94] - Adjusted net income and EPS are non-GAAP measures used by investors and management to evaluate ongoing financial performance, excluding certain items like amortization of intangibles and acquisition costs[94] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations, including cash and working capital Liquidity Metrics | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Cash and cash equivalents | $0.9 million | $9.6 million | | Working capital | $9.0 million | $19.7 million | - Cash and cash equivalents decreased significantly by $8.7 million, and working capital declined by $10.7 million[95] - The company made $7.0 million in prepayments toward its variable rate debt in the first nine months of 2023[96] - Management believes existing cash, borrowing availability under the $25.0 million ABL Facility, and cash from operations will be sufficient to fund operations for the next 12 months[98] Cash Flows Analysis This section provides a detailed breakdown of cash flows from operating, investing, and financing activities Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Operating activities | $6.7 million | $(4.3) million | | Investing activities | $(1.3) million | $(4.4) million | | Financing activities | $(14.1) million | $7.4 million | - Net cash provided by operating activities was $6.7 million in 2023, a significant improvement from cash used in 2022[100] - Net cash used in investing activities decreased due to lower acquisition spending in 2023 compared to a $3.1 million acquisition in 2022[101] - Net cash used in financing activities was $(14.1) million, primarily from net repayments of $6.8 million on the ABL Facility and $7.8 million on long-term debt[102] Inflation Impact This section discusses the perceived impact of inflation on the company's operations and its strategies for mitigation - The company does not believe inflation had a material impact during the nine months ended September 30, 2023 and 2022[103] - Flexible pricing structures and cost recovery fees allow the company to address inflationary increases in costs such as fuel, labor, and capital items[103] Critical Accounting Estimates and Policies This section highlights the significant judgments and estimates used in preparing the financial statements - The preparation of financial statements requires significant estimates and judgments in areas such as accounts receivable, goodwill, intangible assets, stock-based compensation, deferred taxes, and fair value measurements[104] - There have been no significant changes in critical accounting policies during the nine months ended September 30, 2023, other than the adoption of ASU 2016-13[104] Recent Accounting Pronouncements This section summarizes the adoption and impact of new accounting standards on the company's financial reporting - Refer to Note 2 for details on recent accounting pronouncements, specifically the adoption of ASU 2016-13, which had no material impact[105] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet debt or undisclosed related-party transactions - The company has no off-balance sheet debt or similar obligations[106] - There are no transactions or obligations with related parties that are not disclosed, consolidated, or reflected in reported results[106] - The company does not guarantee any third-party debt[106] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no material quantitative or qualitative disclosures about market risk beyond what is already discussed in the financial statements and management's discussion and analysis - This item is marked as 'Not applicable', indicating no material quantitative or qualitative disclosures about market risk[107] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting, while acknowledging the inherent limitations of any control system Evaluation of Disclosure Controls and Procedures This section details management's evaluation and conclusion regarding the effectiveness of the company's disclosure controls and procedures - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023[108] - Disclosure controls and procedures were concluded to be effective at a reasonable assurance level[108] Changes in Internal Control Over Financial Reporting This section reports on any material changes in the company's internal control over financial reporting during the period - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the period[109] Limitations on Effectiveness of Controls and Procedures This section acknowledges the inherent limitations of any control system, which can only provide reasonable assurance - Management acknowledges that control systems provide only reasonable, not absolute, assurance and are subject to inherent limitations[110] - Limitations include faulty judgments, simple errors, circumvention by individual acts or collusion, and management override[110] PART II. OTHER INFORMATION This section covers other important information not included in the financial statements, such as legal proceedings and risk factors Item 1. Legal Proceedings The company is not currently aware of any legal proceedings that are expected to have a material adverse effect on its business or financial condition - The company is not aware of any legal proceedings that could have a material adverse effect on it[113] Item 1A. Risk Factors This section supplements the risk factors from the 2022 Annual Report, specifically highlighting the potential adverse impacts of financial institution instability on the company's operations, vendors, and customers, which could negatively affect its financial condition, results of operations, and cash flows - A new risk factor addresses the instability of certain financial institutions and its potential adverse impacts on vendors, customers, and the company's ability to access cash or borrowings[114] - Tight credit conditions could lead to economic slowdown and reduced demand for the company's services[114] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities and use of proceeds[115] Item 3. Defaults Upon Senior Securities This section confirms no defaults on senior securities during the reporting period - No defaults upon senior securities[115] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is marked as 'Not applicable'[115] Item 5. Other Information This section confirms no other material information to report - No other information to report[115] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various certifications, the Restricted Stock Unit Agreement, and the Inline XBRL financial statements - Exhibits include the Form of Quest Resource Holding Corporation Restricted Stock Unit Agreement (10.1†)[116] - Certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2) are included[116] - The financial statements are formatted in Inline XBRL (101)[116] Signatures This section provides the official signatures of the company's executive officers, certifying the report's accuracy - The report was signed by S. Ray Hatch, President and Chief Executive Officer, and Brett W. Johnston, Senior Vice President and Chief Financial Officer[119] - The signing date for the report was November 14, 2023[119]