Quest Resource Holding Corp: Form 10-Q for the period ended Mar 31, 2026

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; compliance with our loan covenants; 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, 2025 (the “2025 Annual Report”).

Business Overview

We are a national provider of waste and recycling management 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, while also receiving optimized operational efficiencies and lower costs.

Our revenue is primarily generated from fees charged for the collection, transfer, disposal and recycling services and from sales of commodities by our recycling operations. We also rent dumpster and compacting equipment to customers. 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 Months Ended March 31, 2026 and 2025 Operating Results

The following table summarizes our operating results for the three months ended March 31, 2026 and 2025 (in thousands):

(Unaudited)

Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025

Global Economic Trends

There has been heightened uncertainty in the macroeconomic environment, especially as it relates to fluctuations in unemployment, inflation, tariffs, consumer and business spending, and government actions or inactions, including government shutdowns. There are also significant geopolitical concerns, including ongoing global conflicts and recent military actions involving Iran and the broader Middle East, which have caused volatility in capital markets and may continue to have further global economic consequences, including disruptions of the global supply chains 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, war, military actions, or regional conflict, 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 operating 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 March 31, 2026, revenue was $61.7 million, a decrease of $6.7 million, or 9.8%, compared to $68.4 million for the quarter ended March 31, 2025.

The decline in revenue for the quarter ended March 31, 2026 was primarily driven by ongoing headwinds from certain clients in the industrial end-market, which reduced revenue by approximately $4.0 million compared to the prior year same period. These headwinds are mostly confined to a few clients and are primarily related to lower waste volumes and services which are directly tied to the clients’ lower production volumes. Additionally, our revenues decreased from the prior year same period by approximately $3.0 million due to the divestiture of an underperforming business operation which was sold on March 31, 2025. See Note 3 to our condensed consolidated financial statements for further discussion of the sale.

Excluding these specific headwinds, the business grew by approximately $2.0 million over the same period last year, mostly related to new client wins and the expansion of current client business, or wallet share, during the fourth quarter of 2025. This growth in business was partially offset by client attrition of $1.7 million, primarily related to a single client lost in the first quarter of 2025.

Cost of Revenue/Gross Profit

Cost of revenue decreased $5.4 million, or 9.4% to $52.1 million for the quarter ended March 31, 2026 from $57.5 million for the quarter ended March 31, 2025. The reduction in costs was mostly in-line, proportionally, with the same drivers contributing to the decline in revenue mentioned above, where lower volumes resulting from softness in the industrial end-market, as well as the impact of our divested business operations, were the primary contributors to the cost reductions.

Gross profit for the quarter ended March 31, 2026 was $9.7 million, compared to $10.9 million for the quarter ended March 31, 2025. Our gross profit margin was 15.7% for the quarter ended March 31, 2026, compared with 16.0% for the quarter ended March 31,

2025. The declines in both gross profit and gross margin were primarily isolated to the headwinds from the select industrial clients, which contributed to lower volumes as well as isolated margin pressure. These declines were slightly offset by improved gross profit and margins across the remainder of the business, as operating initiatives, maturing margins from new clients, and wallet share expansions continued to take hold.

Operating Expenses

For the quarters ended March 31, 2026 and March 31, 2025, operating expenses were $9.4 million and $19.1 million, respectively.

Selling, general, and administrative expenses were $8.4 million for the quarter ended March 31, 2026, compared to $11.4 million for the same period in 2025. The reduction in expenses includes approximately $1.8 million in savings from labor-related costs. These savings primarily result from a reduction in headcount during the prior year due to operational efficiency initiatives, as well as savings of $0.7 million in severance costs recognized during the quarter ended March 31, 2025. Our cost savings initiatives also resulted in a decrease of approximately $0.6 million in professional fees and marketing-related costs.

Operating expenses for the quarters ended March 31, 2026 and 2025 included depreciation and amortization of $1.0 million and $1.5 million, respectively. The decrease in depreciation and amortization expense is primarily due to a lower customer relationship intangible balance. During the quarter ended March 31, 2025, as a result of certain client attrition, we determined a customer relationship intangible was impaired and recorded an impairment charge of $1.7 million, which reduced the intangible value. See Note 6 to our condensed consolidated financial statements for further discussion.

On March 31, 2025, we completed the sale of substantially all of the assets used in an underperforming business operation. The selling price of the assets 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. In connection with the sale, we recognized a $4.4 million loss on sale of assets during the quarter ended March 31, 2025. See Note 3 to our condensed consolidated financial statements for further discussion.

Interest Expense and Loss on Debt Extinguishment

Interest expense was $2.1 million and $2.3 million for the quarters ended March 31, 2026 and 2025, respectively. The decrease in expense is primarily due to lower borrowings on our PNC ABL Facility for the first quarter of 2026 compared to the first quarter of 2025.

During the quarter ended March 31, 2026, we entered into a Loan and Security Agreement with Texas Capital Bank (the “TCB Loan Agreement”). In connection with the execution and delivery of the TCB Loan Agreement, which provides for an asset-based revolving credit facility (the “TCB ABL Facility”), the PNC Loan Agreement was terminated, and all outstanding amounts were paid in full. The termination of the PNC Loan Agreement resulted in a loss on debt extinguishment of $488 thousand, primarily due to the write-off of unamortized debt issuance costs.

Additionally, in March 2026, we amended our Credit Agreement with Monroe Capital (“Monroe”) to, among other things, modify its financial covenants, which resulted in overall favorable terms for us. As a result of this modification, we entered into a fee arrangement with Monroe for the payment of an exit fee upon the occurrence of certain triggering events, which include a change in control, a debt refinancing, or the maturity of the Credit Agreement. The calculation of the exit fee is dependent upon the financial performance of our business at the time of the triggering event, and the fee has a minimum value of $2.0 million. While the exit fee does not include a limit on the maximum fee to be paid, we do not believe that any amount paid by us will be materially different from the $2.0 million. Therefore, as of March 31, 2026, we recorded the estimated exit fee as an other long-term liability, and the fee has been included in our debt issuance costs which is amortized to interest expense over the remaining term of the Credit Agreement. The value of the estimated liability for the exit fee will be adjusted, in addition to interest expense, if there is a material change in our estimate prior to a triggering event.

As previously disclosed, on October 19, 2020, we granted a warrant to purchase 500,000 shares exercisable immediately and subsequently issued a warrant to purchase 350,000 shares on October 19, 2021 to affiliates of Monroe (the “Holders”) in connection with the financing (the “Warrants”). On March 12, 2026, we and the Holders entered into an Amendment to Warrant to Purchase Common Stock to each of the Warrants to extend the expiration date of the Warrants from March 19, 2028 to June 28, 2030.

We calculated the change in estimated fair value of the warrants resulting from the modification using the Black-Scholes option pricing model, and recorded a debt discount of $198 thousand, which is being amortized to interest expense over the remaining term of the Credit Agreement.

We also incurred approximately $868 thousand in additional debt issuance costs resulting from the March 2026 financing transactions. As a result of these transactions, as of March 31, 2026, our unamortized debt issuance costs and debt discount is $4.6 million. See Note 8 to our condensed consolidated financial statements for further discussion.

Income Taxes

We recorded a provision for income taxes of $22 thousand and an income tax benefit of $(22) thousand for the quarters ended March 31, 2026 and 2025, 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 March 31, 2026 and December 31, 2025. 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 March 31, 2026 was $(2.3) million, compared to a net loss of $(10.4) million for the quarter ended March 31, 2025. The discussions above explain the majority of the changes which contributed to the change in net results year-over-year.

Our operating results, including revenue, operating expenses, and operating margins, 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 $(0.11) and $(0.50) for the quarters ended March 31, 2026 and 2025, respectively. The basic and diluted weighted average number of shares of common stock outstanding was approximately 21.2 million and 20.9 million for the three months ended March 31, 2026 and 2025, respectively.

Adjusted EBITDA

For the three months ended March 31, 2026, Adjusted EBITDA (as defined below), a non-GAAP financial measure, increased 15.2% to $1.8 million from $1.6 million for the three months ended March 31, 2025.

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 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 months ended March 31, 2026 and 2025 (in thousands):

(Unaudited)

For the three months ended March 31, 2026, other adjustments result from an adjustment to estimated severance costs recorded in the prior year. For the three months ended March 31, 2025, other adjustments primarily related to severance and retirement costs, in addition to certain professional fees.

Liquidity and Capital Resources

As of March 31, 2026, we had working capital of $11.9 million, including $1.1 million of cash and cash equivalents, compared with working capital of $11.7 million, including $1.0 million of cash and cash equivalents as of December 31, 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 $1.1 million, our borrowing availability under our $40.0 million TCB 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 table presents a summary of our cash flows for the three months ended March 31, 2026 and 2025 (in thousands):

Cash Flows from Operating Activities

For the three months ended March 31, 2026, our net loss of $(2.3) million included a non-cash loss on debt extinguishment of $488 thousand. Other non-cash items included in our net loss for the three months ended March 31, 2026 totaled approximately $1.8 million and related primarily to depreciation, amortization of intangible assets and debt issuance costs and discounts, a provision for doubtful accounts, and stock-based compensation. For the three months ended March 31, 2025, our net loss of $(10.4) million included a non-cash net loss on sale of $4.4 million and an impairment loss of $1.7 million. Other non-cash items included in our net loss for the three months ended March 31, 2025 totaled approximately $2.9 million and related primarily to depreciation, amortization of intangible assets and debt issuance costs and discounts, a provision for doubtful accounts, and stock-based compensation.

The favorable change in our net cash provided by operating activities primarily results from improved working capital management, especially related to our continued focus on strong collection efforts and improved billing cycle times, which contributed to an improvement in days sales outstanding compared to the first quarter of 2025. During the three months ended March 31, 2026, we also recognized decreased spending for operating expenses as a result of our cost savings initiatives. These positive impacts to our cash provided by operating activities were partially offset by the net decline in client activity during the three months ended March 31, 2026. See Management’s Discussion and Analysis of Financial Condition: Results of Operations for further discussion of our cost savings initiatives and client activity.

Cash Flows from Investing Activities

Cash used in investing activities for the three months ended March 31, 2026 was $(0.4) million and primarily relates to software development costs. Cash provided by investing activities for the three months ended March 31, 2025 was $4.5 million and primarily related to the sale of our divested business operations, which generated cash proceeds of approximately $5.0 million. These proceeds were used to repay a portion of our outstanding debt at March 31, 2025. Other investing activities for the three months ended March 31, 2025 related to software development costs and the purchase of other property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2026 was $0.3 million. During the three months ended March 31, 2026, we had net borrowings of $2.7 million from our credit facilities, which were partially offset by repayments of $2.1 million on our notes payable and payments for debt issuance costs of $178 thousand resulting from the March 2026 financing transactions. Additionally, during the three months ended March 31, 2026, we paid $41 thousand in tax withholding costs for the vesting of certain restricted stock units.

Net cash used in financing activities for the three months ended March 31, 2025 was $(2.5) million, primarily due to the repayment of $3.5 million on our notes payable using proceeds from the sale of certain divested business operations as further discussed in Note 3 to our condensed consolidated financial statements. Other financing activities included net borrowings of $0.9 million on our credit facility, which included a repayment of $1.5 million using the proceeds from the sale of assets, and $0.4 million of borrowings from our PNC equipment term loan. See Note 8 to our condensed consolidated financial statements for further discussion.

Inflation

Although the overall economy has experienced some inflationary pressures, we do not believe that inflation had a material impact on us during the three months ended March 31, 2026 and 2025. We believe our flexible pricing structures and cost recovery fees may help mitigate volatility in costs, such as fuel, labor, and certain capital items, by allowing us to recover certain inflation-related cost increases from our customer base. Ongoing geopolitical conflicts, including recent military actions involving Iran and the broader Middle East, may contribute to further volatility in energy markets and fuel costs, which could increase inflationary pressure on our business or create timing delays in our ability to recover such costs from customers. However, consistent with industry practice, we believe many of our contracts allow us to pass through certain costs to our customers or adjust pricing. While 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 cost increases due to competitive pressures or delays in timing of rate increases. Although we have not been materially affected by inflation to date, we can provide no assurance that we will not be affected in the future by higher rates of inflation, increases in interest rates, or continued volatility in energy and fuel costs.

Critical Accounting Estimates and Policies

Our discussion and analysis of our financial condition and results of operations is 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, the liability for estimated exit fees, 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 2025 Annual Report. There have been no significant changes in our critical accounting policies during the three months ended March 31, 2026, except as follows:

Goodwill Impairment

As of March 31, 2026, goodwill was $81.1 million. We performed our most recent annual impairment analysis as of June 30, 2025, due to a decline in our share price for the previous six months. At that time, we engaged a third party to perform a series of quantitative assessments utilizing multiple valuation methods. The results of that assessment indicated that our goodwill was not impaired. Since that assessment, our share price has declined. We believe that an increase in market uncertainty, especially related to volatility created by the Iran war, is temporary; therefore, we do not believe an interim assessment of goodwill is necessary as of March 31, 2026. However, if our share price continues to decline, marking a more sustained reduction to our share price, our goodwill may be at risk for future impairment.

Monroe Term Loan Exit Fee Liability

Upon the amendment of our Credit Agreement with Monroe Capital, we entered into a fee arrangement with Monroe for the payment of an exit fee upon the occurrence of certain triggering events, which include a change in control, a debt refinancing, or the maturity of the Credit Agreement. The calculation of the exit fee is dependent upon the financial performance of our business at the time of the triggering event. The fee has a minimum value of $2.0 million, and there is not a limit to the maximum fee that could be paid. As of March 31, 2026, we believe the estimated fee to be paid approximates the minimum value of $2.0 million. As a result, we recorded the estimated exit fee as an other long-term liability, and the fee has been included in debt issuance costs which is amortized to interest expense over the remaining term of the Credit Agreement. The variable portion of the estimated fee, or the estimated amount exceeding the minimum value, will be reassessed each reporting period by taking into consideration the probability of the triggering event occurring and our estimated value at that time. Any changes to the estimated value of the variable portion of the fee will increase other long-term liabilities and increase our interest expense.

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 March 31, 2026.

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.