Quest Resource Holding Corp: Form 10-Q for the period ended Jun 30, 2025

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in or incorporated by reference into this Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, and markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Form 10-Q include statements regarding the impact, if any, of the adoption of an ASU on our consolidated financial statements; any changes to inflation rates; exposure to significant interest, currency, or credit risks arising from our financial instruments; and sufficiency of our cash and cash equivalents, borrowing capacity, and cash generated from operations to fund our operations for the next 12 months. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Form 10-Q reflect our views as of the date of this Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors, including the state of the U.S. economy, general global economic conditions, including tariffs and the potential effect of inflationary pressures and increased interest rates on our cost of doing business, could cause actual results to differ materially from those indicated by the forward-looking statements and other risks detailed from time to time in our reports to the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”).

Business Overview

We are a national provider of waste and recycling services to customers from across multiple industry sectors that are typically larger, multi-location businesses. We create customer-specific programs and perform the related services for the collection, processing, recycling, disposal, and tracking of waste streams and recyclables to maximize resource utilization. Our programs and services enable our customers to address their business sustainability and environmental, social and governance goals and responsibilities.

Our revenue is primarily generated from fees charged for our collection, transfer, disposal and services for both solid waste and recyclable materials and from sales of recyclable materials. In addition, we offer products such as antifreeze and windshield washer fluid, dumpster and compacting equipment, and other minor ancillary services.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on and relates primarily to the operations of Quest Resource Holding Corporation and Quest Resource Management Group, LLC (collectively, “we,” “us,” “our,” or “our company”).

Three and Six Months Ended June 30, 2025 and 2024 Operating Results

The following table summarizes our operating results for the three and six months ended June 30, 2025 and 2024 (in thousands):

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Three and Six Months Ended June 30, 2025, compared to Three and Six Months Ended June 30, 2024

Global Economic Trends

There has been heightened uncertainty in the macroeconomic environment, especially as it relates to fluctuations in unemployment, inflation, tariffs, and consumer and business spending. There are also significant geopolitical concerns, including ongoing global conflicts, which have created extreme volatility in the global capital markets and are expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Inflation can adversely affect us by increasing our costs, including salary costs. Any significant increases in inflation and related increases in interest rates could have a material adverse effect on our business, results of operations and financial condition.

Revenue

For the quarter ended June 30, 2025, revenue was $59.5 million, a decrease of $13.6 million, or 18.6% compared to $73.1 million for the quarter ended June 30, 2024. For the six months ended June 30, 2025, revenue was $128.0 million, a decrease of $17.8 million, or 12.2%, compared to $145.8 million for the six months ended June 30, 2024.

The revenue decline for the quarter ended June 30, 2025 was primarily attributable to the divestiture of the mall-related business and ongoing softness in the industrial end market, which reduced revenues by approximately $5 million and $11 million, respectively. These impacts were partially offset by growth within the remaining business, which contributed approximately $3 million in incremental revenue, driven by an $8 million increase from new clients, partially offset by a $5 million decline due to customer attrition.

For the six months ended June 30, 2025, the decrease in revenue was similarly attributable to the divestiture of the mall-related business and softness in the industrial end market, which reduced revenues by approximately $9 million and $17 million, respectively. These declines were partially offset by growth within our remaining business, which contributed approximately $8 million in incremental revenue, driven by an $18.5 million increase from new clients, partially offset by a $9 million reduction due to customer attrition."

Cost of Revenue/Gross Profit

Cost of revenue decreased $11.1 million to $48.5 million for the quarter ended June 30, 2025 from $59.6 million for the quarter ended June 30, 2024. Cost of revenue decreased $12.2 million to $106.0 million for the six months ended June 30, 2025 compared to $118.2 million for the six months ended June 30, 2024. The changes in cost of revenue were primarily related to the changes in revenue.

Gross profit for the quarter ended June 30, 2025 was $11.0 million, compared to $13.5 million for the quarter ended June 30, 2024. The gross profit margin was 18.5% for the quarter ended June 30, 2025, compared to 18.5% for the same quarter of 2024. Gross profit for the six months ended June 30, 2025 was $22.0 million, compared to $27.6 million for the six months ended June 30,

2024. The gross profit margin was 17.2% for the six months ended June 30, 2025, compared to 18.9% for the six months ended June 30, 2024. The changes in gross profit for the quarter and year to date periods were primarily due to the net impacts of the changes in both revenue and cost of revenue.

The gross profit margin percentage for the quarter ended June 30, 2025 remained flat compared to the quarter ended June 30, 2024. While we began to see the positive impact on margins resulting from current period performance initiatives gains, they were offset by approximately 2% due to the higher costs of implementing new customers. For the six months ended June 30, 2025, gross profit margin percentages declined by 1.7% due to the higher cost of implementing new customers which negatively impacted margins by approximately 2%. When new customers are on-boarded, we typically experience a higher cost of revenue during the implementation period while revenue is still ramping up. This results in lower margins during the implementation period, but as business with the customer increases the margins will mature over time.

Revenue, gross profit, and gross profit margins are affected period to period by the volumes of waste and recyclable materials generated by our customers, the frequency and type of services provided, the price and mix of the services provided, price changes for recyclable materials, the cost and mix of subcontracted services provided in any one reporting period, and the timing of customer on-boarding and divestitures. Volumes of waste and recyclable materials generated by our customers is impacted period to period based on several factors including their production or sales levels, demand of their product or services in the market, supply chain reliability, and labor force stability, among other business factors.

Operating Expenses

Operating expenses were $10.7 million and $11.8 million for the quarters ended June 30, 2025 and 2024, respectively. Operating expenses were $29.7 million and $23.9 million for the six months ended June 30, 2025 and 2024, respectively.

Selling, general, and administrative expenses were $9.3 million and $9.4 million for the quarters ended June 30, 2025 and 2024, respectively. Selling, general, and administrative expenses were $20.7 million and $19.2 million for the six months ended June 30, 2025 and 2024, respectively. The increase primarily relates to increases in labor related expenses which included $0.7 million in severance and retirement expenses in the first quarter of 2025. We reduced headcount beginning late in the first quarter of 2025 as a result of operational efficiency initiatives. We began to realize cost savings from the headcount reduction beginning in the second quarter of 2025.

Operating expenses for the quarters ended June 30, 2025 and 2024 included depreciation and amortization of $1.3 million and $2.4 million, respectively. Operating expenses for the six months ended June 30, 2025 and 2024 included depreciation and amortization of $2.8 million and $4.7 million, respectively. The decrease in depreciation and amortization expense in 2025 is due primarily to lower customer relationship intangible asset balances being amortized.

On March 31, 2025, we completed the sale of substantially all of the assets used in our mall related business. The selling price of the assets, which had been classified as held for sale on December 31, 2024, was approximately $5.0 million in cash plus (i) additional amounts, not to exceed $6.5 million, based on future performance of the contracts sold over the three years following the date of closing and (ii) a one-time payment based on the purchaser’s ability to collect the accounts receivable and other monies due for sales and deliveries of goods, performance of services and other business transactions, subject to certain other adjustments as set forth in the asset purchase agreement.

We recognized a $4.5 million loss on sale of assets in the six months ended June 30, 2025 ($61 thousand loss recognized in the three months ended June 30, 2025) resulting from the sale of the mall related business and additional post closing adjustments. See Note 3 to our condensed consolidated financial statements for further discussion.

We recorded a $1.7 million impairment charge in the first quarter of 2025 associated with certain customer relationship intangible assets. See Note 6 to our condensed consolidated financial statements for further discussion.

Interest Expense

Interest expense was $2.4 million and $2.6 million for the quarters ended June 30, 2025 and 2024, respectively. Interest expense was $4.6 million and $5.1 million for the six months ended June 30, 2025 and 2024, respectively. The decrease is primarily due to lower interest rates, partially offset by increased borrowings under our revolving credit facility and our equipment term loan. We are amortizing debt issuance costs of $5.3 million and OID of $1.8 million to interest expense over the life of the related debt arrangements as discussed in Note 8 to our condensed consolidated financial statements.

Income Taxes

We recorded an income tax benefit of $(22) thousand and a provision for income taxes of $684 thousand for the quarters ended June 30, 2025 and 2024, respectively. We recorded an income tax benefit of $(44) thousand and a provision for income taxes of $743 for the six months ended June 30, 2025 and 2024, respectively. The provision/(benefit) for income tax is primarily attributable to state tax obligations based on current estimated state tax income/(loss) multiplied by the state tax apportionment percentage for states with no net operating loss carryforwards.

We continued to record a full valuation allowance against all our deferred tax assets (“DTAs”) as of both June 30, 2025 and December 31, 2024. We intend on maintaining a full valuation allowance on our DTAs until there is sufficient evidence to support the reversal of all or some portion of these allowances. Over the near term, we do not anticipate reversing a significant portion of this allowance. Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability that we are able to actually achieve.

Net Loss

Net loss for the quarter ended June 30, 2025 was $(2.0) million, compared to net loss of $(1.5) million for the quarter ended June 30, 2024. Net loss for the six months ended June 30, 2025 was $(12.4) million, compared to net loss of $(2.2) million for the six months ended June 30, 2024. The explanations above detail the majority of the changes related to the change in net results.

Our operating results, including revenue, operating expenses, and operating margins, will vary from period to period depending on commodity prices of recyclable materials, the volumes and mix of services provided, as well as customer mix during the reporting period, and the timing of acquisitions and divestitures.

Loss per Share

Net loss per basic and diluted share attributable to common stockholders was $(0.09) and $(0.07) for the quarters ended June 30, 2025 and 2024, respectively. Net loss per basic and diluted share attributable to common stockholders was $(0.59) and $(0.11) for the six months ended June 30, 2025 and 2024, respectively.

The basic and diluted weighted average number of shares of common stock outstanding were approximately 20.9 million and 20.5 million for the three months ended June 30, 2025 and 2024, respectively. The basic and diluted weighted average number of shares of common stock outstanding were approximately 20.9 million and 20.4 million for the six months ended June 30, 2025 and 2024, respectively.

Adjusted EBITDA

For the three months ended June 30, 2025, Adjusted EBITDA (as defined below), a non-GAAP financial measure, decreased 47.8% to $2.7 million from $5.1 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, Adjusted EBITDA decreased 58.7% to $4.2 million from $10.3 million for the same period in 2024.

We use the non-GAAP measurement of earnings before interest, taxes, depreciation, amortization, stock-related compensation charges, and other adjustments, or “Adjusted EBITDA”, to evaluate our performance. Adjusted EBITDA is a non-GAAP measure that is also frequently used by analysts, investors and other interested parties to evaluate the market value of companies considered to be in similar businesses. We suggest that Adjusted EBITDA be viewed in conjunction with our reported financial results or other financial information prepared in accordance with GAAP.

The following table reflects the reconciliation of net loss to Adjusted EBITDA for the three and six months ended June 30, 2025 and 2024 (in thousands):

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For the three months ended June 30, 2025, other adjustments primarily related to certain loan amendment costs and other professional fees. For the six months ended June 30, 2025, other adjustments primarily related to severance and retirement costs, certain loan amendment costs, and other professional fees. For the three and six months ended June 30, 2024, other adjustments included certain professional fees as well as certain administrative fees related to borrowings.

Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share

Adjusted net income (loss), a non-GAAP financial measure, was $(0.8) million for the three months ended June 30, 2025, compared with $0.7 million for the three months ended June 30, 2024. Adjusted net income (loss) was $(3.7) million for the six months ended June 30, 2025, compared with $2.3 million for the six months ended June 30, 2024. We present adjusted net income (loss) and adjusted net income (loss) per diluted share, both non-GAAP financial measures, supplementally because they are widely used by investors as a valuation measure in the solid waste industry. Management uses adjusted net income (loss) and adjusted net income (loss) per diluted share as two of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We provide adjusted net income (loss) to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income (loss) has limitations due to the fact that it excludes items that have an impact on our financial condition and results of operations. Adjusted net income (loss) and adjusted net income (loss) per diluted share are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate these non-GAAP financial measures differently. Our adjusted net income (loss) and adjusted net income (loss) per diluted share for the three and six months ended June 30, 2025 and 2024 are calculated as follows (in thousands except per share amounts):

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Liquidity and Capital Resources

As of June 30, 2025, we had working capital of $16.9 million, including $0.4 million of cash and cash equivalents, compared with working capital of $30.7 million, including $0.4 million of cash and cash equivalents as of December 31, 2024. Working capital at December 31, 2024 included $8.1 million net assets held for sale which were sold in the first quarter of 2025.

We derive our primary sources of funds for conducting our business activities from operating revenues; borrowings under our credit facilities; and the placement of our equity securities to investors. We require working capital primarily to carry accounts receivable, service debt, purchase capital assets, fund operating expenses, address unanticipated competitive threats or technical problems, withstand adverse economic conditions, fund potential acquisition transactions, and pursue goals and strategies.

We believe our existing cash and cash equivalents of $0.4 million, our borrowing availability under our $45.0 million ABL Facility (as defined and discussed in Note 8 to our condensed consolidated financial statements), and cash expected to be generated from operations will be sufficient to fund our operations for the next 12 months and thereafter for the foreseeable future. Our known current- and long-term uses of cash include, among other possible demands, capital expenditures, lease payments and repayments to service debt and other long-term obligations. We have no agreements, commitments, or understandings with respect to any such placements of our securities and any such placements could be dilutive to our stockholders.

Cash Flows

The following discussion relates to the major components of our cash flows for the six months ended June 30, 2025 and 2024.

Cash Flows from Operating Activities

Net cash provided by operating activities was $2.8 million for the six months ended June 30, 2025 compared with net cash used in operating activities of $(0.8) million for the six months ended June 30, 2024.

Net cash provided by operating activities for the six months ended June 30, 2025 related primarily to the net effect of the following:

• net loss of $(12.4) million, which includes a non-cash impairment loss of $1.7 million and a loss on sale of assets of $4.5 million;
• other non-cash items of $5.3 million, which primarily related to depreciation, amortization of intangible assets and debt issuance costs, provision for doubtful accounts, and stock-based compensation; and
• net cash provided by the net change in operating assets and liabilities of $3.7 million, primarily associated with relative changes in accounts receivable, accounts payable, and accrued liabilities.

Net cash used in operating activities for the six months ended June 30, 2024 related primarily to the net effect of the following:

• net loss of $(2.2) million;
• non-cash items of $6.9 million, which primarily related to depreciation, amortization of intangible assets and debt issuance costs, provision for doubtful accounts, and stock-based compensation; and
• net cash used in the net change in operating assets and liabilities of $(5.6) million, primarily associated with relative changes in accounts receivable, accounts payable, and accrued liabilities. This includes an earn-out payment of $(1.0) million.

Our business, including revenue, operating expenses, and operating margins, may vary depending on the blend of services we provide to our customers, the terms of customer contracts, recyclable materials contracts, and our business volume levels. Fluctuations in net accounts receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers, and the inception, increase, modification, or termination of customer relationships. Our operating activities may require additional cash in the future from our debt facilities and/or equity financings depending on the level of our operations.

Cash Flows from Investing Activities

Cash provided by investing activities for the six months ended June 30, 2025 was $4.2 million and primarily related to $5.0 million in proceeds from the sale of mall related business assets. Cash used in investing activities for the six months ended June 30, 2024 was $(4.8) million and primarily related to the purchase of $(3.1) million in compactors and related equipment. Other investing activities are primarily from purchases of intangible assets such as software development costs and other property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 30, 2025 was $(7.0) million, primarily from $3.5 million in repayments of notes payable with proceeds from sale of assets as further discussed in Note 3 to our condensed consolidated financial statements and net repayments of $2.8 million on our ABL Facility. Net cash provided by financing activities for the six months ended June 30, 2024 was $6.3 million, primarily from net borrowings of $4.0 million on our ABL Facility and $2.5 million borrowings from our PNC equipment term loan. See Note 8 to our condensed consolidated financial statements for a discussion of the ABL Facility and other notes payable.

Inflation

Although the overall economy has experienced some inflationary pressures, we do not believe that inflation had a material impact on us during the six months ended June 30, 2025 and 2024. We believe that volatility in costs, such as fuel, labor, and certain capital items, can be addressed by our flexible pricing structures and cost recovery fees allowing us to recover certain of the cost of inflation from our customer base. Consistent with industry practice, many of our contracts allow us to pass through certain costs to our customers or adjust pricing. Although we believe that we should be able to offset many cost increases that result from inflation in the ordinary course of business, we may be required to absorb at least part of these costs increases due to competitive pressures or delays in timing of rate increases. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation and increases in interest rates.

Critical Accounting Estimates and Policies

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include carrying amounts of accounts receivable, goodwill and other intangible assets, stock-based compensation expense, and deferred taxes. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Annual Report. There have been no significant changes in our critical accounting policies during the six months ended June 30, 2025, except as follows:

Goodwill Impairment Testing

The qualitative assessment of goodwill at June 30, 2025 determined a triggering event occurred requiring that we conduct additional quantitative analyses. The triggering event was primarily due to the decrease in the Company's share price during the six months ended June 30, 2025 resulting in a decline in market capitalization.

Management engaged a third party to perform a series of quantitative assessments utilizing multiple valuation methods. Those assessments included both market and income-based methods utilizing Level 2 observable market data and Level 3 unobservable inputs, respectively. Significant estimates in the market-based method included identifying similar companies with comparable business factors such as service offerings, customers, size, growth, profitability, risk and return on investment, as well as assessing comparable market multiples in estimating the fair value of the Company. The income-based method is a discounted cash flow analysis and the significant estimates included expected growth rates, profitability and the weighted average cost of capital. The Company used an equal weighted average blend of these methods to assess its fair value. The results of those assessments indicated that the Company's fair value was in excess of the Company's book value and therefore its goodwill was not impaired as of June 30, 2025.

Management will continue to monitor market conditions to determine if another triggering event has occurred. Should a triggering event occur, the Company will perform a quantitative assessment to estimate fair value.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet debt or similar obligations. We have no transactions or obligations with related parties that are not disclosed, consolidated into, or reflected in our reported results of operations or financial position. We do not guarantee any third-party debt.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. We base the design of any system of controls in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.