Quest Resource (NASDAQ:QRHC) reported sequential improvement in its first quarter of 2026, with management pointing to seasonal recovery in industrial volumes, contributions from recently onboarded customer wins and continued cost controls, while noting that a softer manufacturing environment remains a headwind.
President and CEO Perry Moss said the quarter showed “steady monthly sequential improvement” from the fourth quarter, consistent with the company’s typical seasonal pattern and “slightly better than the prior year.” He said revenue from industrial customers increased primarily because of seasonality, but the overall industrial portfolio remained challenged by weaker manufacturing activity.
Revenue Declines Year Over Year but Improves Sequentially
Chief Financial Officer Brett Johnston said first-quarter revenue was $61.7 million, down 10% from a year earlier but up 5% from the fourth quarter. The year-over-year decline was mainly tied to ongoing headwinds from certain industrial clients, which reduced revenue by about $4 million compared with the prior year.
Johnston said those pressures were concentrated among a few clients and were primarily linked to lower waste volumes and services tied to reduced customer production volumes. The prior-year period also included $3 million of revenue from Quest’s mall-related business, which was divested in the first quarter of 2025.
Excluding those specific headwinds, Johnston said the business grew by about $2 million, mostly from new clients and expanded client business or wallet share added during the fourth quarter of 2025. That growth was partially offset by $1.7 million of client attrition, primarily related to a single client loss in the first quarter of 2025.
Johnston said the company has now moved past the higher-than-normal attrition it experienced in late 2024 and early 2025, which he described as isolated and mostly tied to customers that were acquired and absorbed into incumbent waste solutions. He said customer retention rates have since returned to more normalized levels.
Gross Profit Improves From Fourth Quarter
Quest reported first-quarter gross profit of $9.7 million, down nearly 12% from the prior year but up 6% sequentially. Gross margin was 15.7%.
Johnston said the year-over-year declines in gross profit and gross margin were primarily tied to the same industrial client headwinds, including lower volumes and isolated margin pressure. Those effects were partially offset by improved gross profit and margins across the rest of the business, as operating initiatives and maturing contributions from new clients and wallet share expansions took hold.
Management said several recent customer wins and expansions that had previously carried one-time onboarding costs became full contributors to financial results by the end of the first quarter. Moss said those wins included a significant expansion with an existing retail customer, the onboarding of a new full-service restaurant customer and expanded wallet share with two major customers.
Looking to the second quarter, Johnston said Quest expects sequential growth in gross profit dollars. He said a newly announced quick service restaurant customer, launched May 1, should ramp more quickly than a typical new client because it requires fewer service provider changeouts and has minimal startup costs.
New QSR Contract Adds to Diversification Effort
Moss said Quest recently won a new contract with one of the largest franchisees in the quick service restaurant industry. He described the customer as a large national operator with “plenty of white space for wallet share expansion.”
During the question-and-answer portion of the call, Moss said Quest does not disclose specific client details, but described the new QSR account as a seven-figure opportunity. He said Quest initially won a little more than 50% of the customer’s portfolio, based on locations, with typical municipal solid waste and recyclables among the material streams.
Moss said the account came from another asset-light provider, and he said early indications suggested Quest’s launch and transition process was smoother than a competing provider’s. He said that made him optimistic about further growth potential with the customer.
Management also highlighted share-of-wallet opportunities as a central growth focus. Moss said Quest has had several dozen share-of-wallet wins, though not all are material enough to discuss individually. He said the company has five or six opportunities with some of its largest customers to bring on additional segments of their business, and he described the share-of-wallet pipeline as significant, roughly half the size of the new business pipeline.
SG&A Falls Sharply From Prior Year
First-quarter SG&A was $8.4 million, which Johnston said was better than the estimate management provided on the prior call. SG&A increased 9% sequentially, mainly due to the resumption of bonus expense, but declined $3 million, or 26%, from the year-earlier period.
Johnston said Quest’s operational excellence initiatives continue to deliver productivity and cost-containment benefits. Moss also pointed to improvements in exception management, billing and collections, vendor management and overall productivity as areas where the company is seeing progress.
Moss said Quest’s technology platform remains a key differentiator, particularly in identifying exceptions in vendor invoices. He said the company has invested in automated “no-touch” capabilities to help teams rectify those exceptions more efficiently, improving service levels and internal processes.
Debt Paydown and Cash Cycle Remain Priorities
Quest ended the quarter with $1.1 million in cash and approximately $63.4 million in net notes payable. Johnston said the company refinanced its asset-based lending facility with Texas Capital Bank in March, replacing its prior ABL with PNC. The company also negotiated covenant easements with Monroe Capital, which holds its term debt, across 2026 and into 2027.
Johnston said the new ABL arrangement provides more flexibility to use excess availability to make voluntary early payments on higher-interest term debt. Quest made a $2 million early payment on the Monroe term debt during the quarter, and Johnston said the company expects to make similar early payments as appropriate during the year.
Operating cash flow was slightly positive at about $200,000, an improvement from the prior year despite lower revenue and gross profit dollars. Johnston attributed the improvement to optimization of billing and collections and vendor payment processes, partially offset by cash used in connection with the ABL refinancing.
Days sales outstanding finished the quarter in the mid-70s, roughly unchanged from the fourth quarter but down from the 80s a year earlier. Johnston said working capital days improved to 11.5, about 11 days better than a year ago.
Management said its priorities for 2026 remain growing with new and existing customers, improving margins, developing its operating platform, increasing cash generation and reducing debt. Moss said the company remains cautious given geopolitical events and the risk of an extended period of elevated fuel prices, but said Quest is positioned to benefit if macroeconomic conditions improve.
About Quest Resource (NASDAQ:QRHC)
Quest Resource Holding Corporation, together with its subsidiaries, provides solutions for the reuse, recycling, and disposal of various waste streams and recyclables in the United States. The company provides disposal and recycling services for motor oil and automotive lubricants, oil filters, scrap tires, oily water, goods destruction, food waste, meat renderings, cooking oil and grease trap waste, plastics, cardboard, metal, glass, mixed paper, construction debris, as well as a large variety of regulated and non-regulated solid, liquid, and gas wastes.
