Quest Resource (US:QRHC)2019-08-15 03:34Financial Data and Key Metrics Changes - Second quarter revenue was $25.4 million, a decrease of 8.9% compared to the same quarter last year. Year-to-date revenue was $52.1 million, relatively even versus the prior year [15][16] - Second quarter gross profit reached a record of $4.7 million, increasing 7.3% year-over-year. Year-to-date gross profit was $9.3 million, a 16.5% growth year-over-year [18][19] - Adjusted EBITDA for the second quarter was a record $825,000, increasing 5.8% year-over-year. Year-to-date adjusted EBITDA increased 81.3% to $1.6 million [24] Business Line Data and Key Metrics Changes - The decrease in revenue was primarily due to a slowdown in production at one of the largest industrial customers, affecting a lower margin waste stream, which accounted for about half of the Q2 decrease [16] - The gross margin for the second quarter increased to a record 18.7%, a 280-basis point improvement compared to Q2 last year, attributed to a shift in service mix and lower costs of subcontracted services [19][20] Market Data and Key Metrics Changes - The company is diversifying its exposure to specific markets, with significant growth in automotive service and industrial end markets, alongside recent growth in foodservice verticals [39][40] - The company has secured contracts with Buffalo Wild Wings and another restaurant group, indicating a successful penetration into the foodservice market [32][40] Company Strategy and Development Direction - The company is focusing on industries with complex waste streams where it can provide differentiated service offerings, aiming to grow gross profit and adjusted EBITDA in excess of 10% for 2019 [48][49] - Recent governance changes include aligning management and the Board with shareholder interests, indicating a commitment to enhancing shareholder value [28][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth trajectory, highlighting the strength of customer relationships and a growing pipeline of profitable opportunities [12][31] - The company anticipates continued growth in gross profit and adjusted EBITDA, despite potential fluctuations in topline revenue due to external factors [48][49] Other Important Information - The cash balance at the end of the second quarter was $2.1 million, with $4.9 million drawn on a $20 million credit facility [26] - Operating expenses decreased 6.3% year-over-year to $4.6 million, primarily due to lower amortization expenses [21][22] Q&A Session Summary Question: Inquiry about Buffalo Wild Wings contract and sales cycle - Management indicated that the sales cycle for such contracts is approximately six months, emphasizing the complexity of presenting their multifaceted solutions compared to traditional waste management companies [55][56] Question: Pipeline status and contract losses - Management reported a healthy pipeline, noting that while some prospects may not convert due to price sensitivity, recent wins indicate positive movement [58] Question: Details on lower margin waste stream impact - Management confirmed that the slowdown was due to external macro factors affecting an industrial client, but gross profit dollars are still growing despite this downturn [62][64] Question: Deployment of services for new contracts - Management confirmed that Buffalo Wild Wings is fully deployed, while the other contract will be implemented within 60 to 90 days [75][76] Question: SG&A expense expectations - Management expects SG&A expenses to range between $4 million to $4.2 million per quarter moving forward [87] Question: Operating lease liability confirmation - Management confirmed that the increase in PP&D is related to operating lease liabilities [88]