Quest Resource Holding Corporation Price & Performance (QRHC)

Quest's forward looking statements are presented as of the date made and we disclaim any duty to update such statements unless required by law to do so. [indiscernible] In addition, in this call, we may include industry and market data and other statistical information as well as Quest's observations and views about industry conditions and developments. [indiscernible] The data and information are based on Quest estimates, independent publications, government publications and reports by research firms and other sources. [indiscernible] Although Quest believes these sources are reliable and that data and information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information. Certain non GAAP financial measures will be discussed during this call.

These non GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes that presentation of these non GAAP financial measures is useful for investors' understanding of the assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that financials discussed in this call will not will be on a non GAAP basis. Full reconciliations of non GAAP to GAAP financial measures are included in today's earnings release. With all that said, I'll now turn the call over to Dan Freeburg, Chairman of the Board. Good afternoon, and thank you for joining us on today's call.

I'm Dan Friedberg, Chairman of the Board at Quest. Joining me on the call today is Perry Moss, our newly appointed CEO and Brett Johnston, our CFO. Today, we would like to discuss what is going well [indiscernible] we have not performed what we're doing about it, and where we are headed. First, I am optimistic about the future Quest is well positioned in what is a very attractive market. Customers are recognizing the value of an asset light services model. Our ability to find solutions for their waste disposal needs and doing so at the lowest possible cost is increasingly important in an industry that is changing how it disposes of waste and is charging higher prices for services.

We are adding clients at record rates many of whom are initiating larger programs than we have seen previously. Moreover, these customers are providing positive referrals which is helping to fill our increasing pipeline. And enhance our reputation in the marketplace. Second, we have not executed at the level or with the consistency that we need. Our growth is creating opportunities for expanded margins and increasing scale benefits. But we have not converted that top line momentum into sustained margin and profit growth. The issues we have experienced over the past year temporary cost increases coming from onboarding new clients, implementing our new vendor management system, the impact of client attrition and weakness in our industrial clients end markets have all impacted our results. We have grown quickly over the past few years. And quite frankly, this has exposed weaknesses in our processes and systems. These are execution issues and are all addressable. But while they are improving, we recognize we need to do more faster Third, we are taking decisive action. We are reducing costs, implementing process improvements, accelerating the integration of technology into our workflow, supporting training and collaboration, increasing accountability, and targeting improved performance across the business.

By achieving these objectives, we will increase the value we bring to clients, improve employee satisfaction, increase end to end business efficiency and be a more profitable and scalable business. We are confident in the future but we clearly recognize that it is time to deliver on the promise and to convert our growing platform into a consistent source of increasing shareholder value.

Before we review last year's performance, I wanted to take a moment to discuss the announcement we made this afternoon that Ray Hatch is retired. As CEO. And that we have promoted our Chief Revenue Officer, Perry Moss to CEO. Ray has been a major force at Quest over the past nine years. A key architect in our successful growth He's built a strong culture with an organization committed to adding value to our clients. We are pleased that Ray will remain on the Board of Directors and I wholeheartedly want to thank him On behalf of the Board, I and management for all his contributions. Over the last number of months, the Board has been working to find the best CEO for the company. After considering the skills needed, we determined that driving operating efficiencies and generating continued growth are the two critical elements that we need to achieve our objectives. Given that, it was clear to us that Perry is the perfect candidate Throughout his career, he has consistently delivered disciplined, process driven successes in business development, operational and general management roles. Terry joined Quest in July 2023. And has served as our Chief Revenue Officer since June 2024.

He has more than thirty years of operating experience in our industry. Prior to joining us, Perry consistently succeeded in general management roles at Rubicon Technologies, Oakleaf Holdings and at Smurfit Stoneway Services. Since joining Quest, Perry has fundamentally changed our sales approach. By introducing metric driven, results oriented discipline to our sales function. Achieving in a short time records for client wins, new revenue and pipeline growth. We are excited for him to work with our great team to implement the same performance culture and metrics across the company. Before the Before passing the call to Brett, I'd like to ask Perry, to introduce himself. Thank you, Dan. Today, I'd like to give you a bit of background on myself.

Why I joined Quest, why why I am confident in the direction we are heading. I'll be brief today but I look forward to meeting you and to providing more details on our plans in the coming weeks and months. While I have led sales as Chief Revenue Officer since joining Quest eighteen months ago, I've enjoyed a very successful thirty plus year career [indiscernible] with many years in revenue generating roles. But with even more years spent in operating roles. Most recently, I helped grow Rubicon Technologies into a 700,000,000 revenue waste services company. But prior to that, I had operating roles leadership roles at Oakleaf Holdings and at Smurfit Stone Waste Reduction Services. I firmly believe in establishing processes setting metrics, and demanding performance. I believe that having served so many clients is a key factor in my success. In fact, earlier in my career, I was able to consistently lead my respective companies and grow because I had operational experience and could directly relate to the client. Quest's unwavering focus on the client is one of the key reasons that I came to work here. In Quest asset light model, where we don't own landfills, or trucks or other disposal assets we must execute quickly efficiently consistently and at low cost.

The Quest culture is amazing and that the clients always come first. But I firmly believe we can execute on behalf of all our stakeholders to deliver in the most efficient, and profitable way possible. I believe in well defined processes and in measuring everything. Applying KPIs, analytics, and technology to every aspect of the business. This is a key to training and motivating employees, key to understanding value to clients, and key to driving performance. Over the next few months, we will share more details on our approach. But in summary, we will be relentless in implementing a results oriented approach and building a performance culture. I will now hand the call over to Brad. Thanks, Perry, and good afternoon, everyone. During the fourth quarter, we made progress with on boarding new clients and progress with efficiency gains. This was offset by weakness in the end market conditions of a select number of larger clients client attrition, and temporarily elevated expenses. In addition, financial results were also negatively impacted by additional adjustments related to accounts payable during 2021 and 2022. We were aware that this has been an ongoing issue I will discuss it in greater detail later in my remarks.

But the bottom line is that we don't expect any more Revenue for the fourth quarter was $70,000,000 which was up 1% from a year ago.

And down 4% sequentially from the third quarter. We had strong growth from new and existing clients, which accounted for approximately $12,000,000 of fourth quarter revenue. This increase was mostly related to a record level of onboarding activity from eight significant new client wins that we secured during the year. As well as significant expansions with existing clients.

Onboarding activity was slower than we had anticipated during the fourth quarter. As we had delays with rolling out new and expanding client work. These delays were customer related. Most have begun on boarding activities in the first quarter and we anticipate all will be onboarded this year. I will note that it is not uncommon for the timing and pace onboarding activity to change. New clients secured during 2024 generated We expect these wins to provide incremental growth in both revenue and gross profit dollars.

As we complete the rollout and optimize services. Year over year growth was offset by $9,000,000 decrease in revenue due to both soft conditions at certain clients in our industrial end markets and from client attrition. Regarding weak market conditions in the industrial end markets, as we said previously, the relationship with these clients continues to be strong and there are opportunities to add services with them in the long term.

However, these clients have slowed production for now which is likely to continue to impact volumes for at least the next two quarters. I will also note that revenue comparisons for these clients also decreased sequentially mostly due to seasonal factors. In addition to this decrease in project work. Attrition has been a factor negatively affecting revenue comparisons. Approximately one third of the attrition was related to clients in the mall and shopping center sector. A business which we have decided to exit. The remaining client attrition is primarily related to clients that have been acquired. Last year, we said that in 2025, we expect to realize more than $20,000,000 in net incremental revenue from new client wins. Less client attrition. With ongoing changes in the market, we now expect to realize $15 in net incremental revenue from new clients wins achieved during 2024.

I will reiterate that this net number is not an overall revenue forecast. It does not include contribution from other new client wins that we expect during 2025 nor does it include the expansion or contraction business from existing clients or revenue changes due to fluctuations in commodity prices or volumes. During the fourth quarter, gross profit dollars were $10 a 6.7% decrease from last year and an 8.3% decrease sequentially from the third quarter.

The decrease in gross profit dollar comparisons was primarily related to three factors.

One, a shift in revenue mix.

Two, higher than anticipated cost of services and three, $1,000,000 of non cash adjustments related to unreconciled accounts payable related to 2021 and 2022 payments. Regarding the mix shift, as we discussed on previous calls, we had less revenue than expected from more mature client relationships. Where the margin profile has been optimized and it was replaced by revenue from new clients and expanding engagements. Where it typically takes several quarters to optimize the margin profile. [indiscernible] Regarding higher than anticipated cost of sales to ensure a smooth transition to our new automated vendor management system.

As we described on the last call, this temporary [indiscernible] that while we are implementing our new vendor management system, clients do not receive interruption in their level of service. Similar to the third quarter, during the fourth quarter, we temporarily increased spending on client service to make sure there is a smooth transition as we onboard new clients. We had a record amount of onboarding activity during the second half of the year.

New clients place a lot of trust in us to make sure that there are no interruptions in service. Making this temporary incremental investment is well worthwhile. We continue to receive great feedback across the board from new clients about how smooth their onboarding process has gone. In addition, gross profit dollars were million dollars of non cash adjustments related to unreconciled accounts payable related to 2021 and 2022 payments. As we discussed, when we reported 2023 financial results, we estimated and took adjustments of $1,200,000 in accounts payable that were not properly expensed during 2021 and 2022. As we were completing a review of these estimates, for 2024 results, we determined that we required an additional $1,000,000 of adjustments for these accounts for these errors made in 2021 and 2022. We have made full reserves for these accounts payable and the audit of these accounts has been concluded.

Excluding this non cash cost of revenue adjustment of approximately $1,000,000 and a $500,000 bad debt adjustment for receivables related to the business Adjusted EBITDA during the fourth quarter of twenty twenty four would have been approximately $3,200,000 dollars As you look at your models, we expect gross profit dollars to increase approximately $1,000,000 sequentially during the fourth quarter.

Which which reflects relatively flat sequential comparisons with the fourth quarter in the absence of the $1,000,000 adjustment we took during the fourth quarter. Thereafter, we expect sequential and improvements in gross profit dollars beginning in the second quarter as we benefit from efficiency initiatives and growth. Moving on to SG and A. Which was $10,100,000 during the fourth Quest, an increase of $700,000 from a year ago and a decrease of 200,000 sequentially from the third quarter. I will make a couple of notes about SG and A for the fourth quarter. SG and A included approximately $500,000 in bad debt reserves for certain clients related to the mall business portion of RWS. Which is held for sale. In addition, I will note that there were approximately $1,000,000 in lower accruals related to management bonuses for 2024. For the fourth quarter, we expect SG and A to be approximately $11.5 The sequential increase is primarily related to separation costs We expect the actions that we have taken to increase efficiencies and lower costs will begin to show up during the second quarter. Beginning in the second half of the year, we expect SG and A to be approximately 9,500,000.0 per quarter which reflects fully realizing the more than $3,000,000 of annual run rate cost savings and efficiency initiatives we will have taken These initiatives included a 15% reduction in workforce and G and A costs which includes the portion of the RWS business held for sale.

That said, we are going to continue to drive operating leverage and expand margins. Before I move on, I want to mention that in Q4, we recognized an impairment loss of $5,500,000 or $0.26 per diluted share related to the sale of client contracts for the mall and shopping center portion of RWS. This was a non cash charge related to a reduction in a portion of the intangible assets we recorded when we made the acquisition. Dan will discuss the rationale for this sale his remarks.

Moving on to a review of the cash flows and balance sheet. Our liquidity is in good shape. After an exhaustive process, which included discussions and proposals from multiple financing sources, We refinanced with our current lenders, Monroe and P and C. The new financing decreased our blended interest rate margin by 150 basis points reducing our interest expense by approximately $1,000,000 annually.

In addition, we extended our maturity dates with Monroe from October of twenty twenty six to February. And with P and C from April of twenty twenty six to December of twenty twenty nine.

With PNC, we were also able to increase the revolver from $35,000,000 to $45,000,000 And with both lenders, we have improved terms and flexibility.

We are grateful for their continued support, which is a testament to the strength of our team and platform. At the end of the fourth quarter, we had $21,900,000 of available borrowing capacity on our $45,000,000 operating borrowing line and the full $3,000,000 available on our new equipment facility. For the fourth quarter, we used approximately $4,800,000 in cash to fund operations, which was related to an increase in working capital at the end of the year. In particular, our accounts receivable balances were elevated at the end of the year. We still have room to make improvements in this area. I will note that we have great relationships with clients and slower than expected payment is not related to collectability. DSOs have been impacted by the timing of collections from a few of our largest customers.

And we are working with them to accelerate the pace of collections. In addition, with the implementation of our automated AP system, we will be able to bill at a faster pace. Further accelerating our cash cycle and lowering DSOs. Finally, the sale of the non core mall related business of RWS which has been a slow pay business, will also improve our blended DSO rate. At the end of the quarter, we had $80,400,000 in notes payable versus $67,800,000 at the beginning of the year.

The increase primarily reflects growth in borrowing on our lines with PNC to fund working capital.

At this time, I'll turn the call back over to Dan.

Thank you, Brett. Now let's discuss 2024 operational performance.

I want to reiterate that our performance over the last couple of years has been unacceptable. Here are some positive highlights on which we will build from. And the negatives which we are addressing.

I'll start with the positives. We won more new clients in any year in the history of the company, adding more revenue per client than ever before. Our pipeline is robust and our sales force is executing a structured disciplined plan. Through our land and expand strategy, clients continue to reward us with more business. Last year, we added eight new customers and expanded agreements with five of our largest customers. Adding value and expanding share of wallet will be an even greater area of focus. Going forward. In December, we completed the refinancing of our debt. Which Brett discussed in detail. Our new lending package has lowered our blended interest rate margin by about 150 basis points reducing interest expense by approximately $1,000,000 annually.

We continue to make progress with our vendor invoice system. As we increasingly move to zero touch processing capabilities. The efficiency gains from this automation are currently being realized and we expect to achieve greater efficiency gains going forward. Now the negatives. Despite the progress, several factors While we continue to execute on behalf of our clients, we have not at the levels expected and much more is required. On our last call, we spoke about the transition to our new vendor management system However, while still generating improvements, this transition has taken longer. Than expected. Regarding client onboarding, as Brett mentioned, we temporarily incurred costs to successfully onboard our record number of new customers. In an efficient and seamless manner. To do that, we had to incur these added costs. It is important to note the onboarding has proceeded well. Many of new clients are referring potential new clients to us. In addition, weak conditions at certain clients in our industrial end market impacted the fourth quarter. Finally, as mentioned earlier, we experienced we experienced uncharacteristic client attrition in part due to acquisition activity in the mall based sector. Going forward, we have made very solid strides in building organizational capabilities developing systems and are seeing results.

But not quickly enough. Or consistently enough. We are committed to achieving operational excellence.

While our acquisitions have provided scale and scope, it has been clear for a while that the non core tenant direct mall business within RWS was creating issues. And was not contributing to the bottom line.

To address this situation, we conducted a sale process have entered into a preliminary agreement to sell the client contracts for this portion of the business. We expect the transaction to close in the next few months. We are implementing cost reduction actions. Reducing headcount by 15% and eliminating other G and A expenses. Thereby reducing SG and A by $3,000,000 on an annualized basis. The efficiency efforts to date and the cost savings from exiting the Tenant Direct business line. This is being implemented currently and the full effects will be realized by the end of the year. In addition, today we announced that we have made a significant addition to our operational leadership team. Nick Ober has joined Quest as SVP of Operations. Nick most recently served as VP of Freight Brokerage Solutions and Strategy for RXO. Or he led carrier operations for the $3,000,000,000 asset light business unit spun off by XVO. Nick also has deep industry experience having been Director of Operations for a $400,000,000 region for Republic Services. Nick will work closely with Dave Switzer, our Chief Operating Officer and Nick will oversee our vendor management group. And we'll also lead our newly created operations excellence initiative.

This newly established operational excellence initiative will benchmark measure and target improvement levels across the entire workflow. And then develop and implement processes and systems systems that accelerate and increase operating financial performance. And maximize the realization. Of scale benefits. In closing, I want to reiterate my commitment along with the rest of the Board and management team to aggressively drive change increase consistency improve operations and generate significant shareholder value. We've made good progress in gaining scale through acquisitions and more recently through organic growth. The market for our asset light model remains robust We are gaining share clients are providing us with strong referrals, We have opportunities to increase our share of wallet and our cost oriented value proposition is resonating loudly. In addition, we are committed to maintaining a solid balance sheet and our priority for capital allocation is on the repayment of debt. [indiscernible] is the time for execution plain and simple. We know what we need to do are focused on accelerating performance, creating a performance based culture, increasing client satisfaction, driving technology enabled and process efficiencies, and growing operating margins and bottom line performance. Regarding our outlook, we expect the temporary costs incurred in 2024 to be completed in early twenty twenty five and expect the second half to show improvements as we fully ramp new clients benefit from the cost reductions that we are currently implementing and from ongoing operating improvements.

Overall for 2025, we expect to show both top and bottom line growth and expect to resume more meaningful growth as we exit the year. [indiscernible] greatly appreciate all the contributions of the Quest team. And thank all of you for all of your support. In the coming weeks and months, Perry, Bret and I look forward to providing updates on our progress. We would like the operator to provide instructions on how listeners can queue up for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question is from Aaron Spakal with SunTrust.

Yes, good afternoon. Thanks for taking the questions.

First for me, can you talk a little bit more about the vendor management system and kind of the rollout there? Where we're at, some of the costs that you've seen that have been a little bit increased and kind of the timing for when that will be resolved? And then also if you could just touch on sounds like the attrition is stabilizing was mostly due to some M and A. I just want to confirm that. And then on the industrial weakness, as well, that sounds like something that should be a couple more quarters. Is your thoughts today? Just wanted to make sure I understood those correctly.

Hey, Aaron. It's Dan Friedberg. Good to speak to you. First of all, for everyone, I'm here with Perry Moss as as mentioned and with Brett. And so we'll tackle your questions Brett, do you want to dive in?

Sure.

The first question was on the vendor management program and the progress on that. We're We're very excited about the program overall.

Aaron, we have continued to tweak and make improvements. I would say it's substantially complete at this time. This will be something that we'll always look to find opportunities to refine But our zero touch goals that we are achieving those and continue to see improvement month over month. So very satisfied with that We have seen some of the savings that we had previously announced, flow through into Q4, but largely those are still to come.

Especially ramping up through Q2. The costs that related to those, those temporary, those did dwindle into the quarter a little bit more. We'll see a little bit more of that into Q1 and certainly have much better visibility into those right now with all of the KPI tracking that we're doing. And extra initiatives we do to make to really get very disciplined with data going forward. So we feel very confident about that. I do expect to see a little bit of additional costs in Q1, but very positive about the outlook. Coming out of Q1 and into Q2. Especially Aaron, I would just follow Look, the bidder management system which as Brett mentioned is showing real progress. The zero touch capabilities is a clear testament were starting from a a place where our invoices were being handled multiple times We were layering on new systems into old and that process isn't a smooth one. But the progress has been clear. And as we go forward, and part of the reason why we're excited to add Perry and Nick Across the organization, we already had a number of initiatives driving efficiencies, which we've all spoken to before, consolidating them all into one initiative focused on driving efficiency gains, lowering process time and cost increasing efficiencies is really what we're focused on.

Vendor management is a good example of it.

But we expect to see a lot more of it across the organization.

And then Aaron on your I got your third question was on the industrials and Quest to confirm, we did say that and reinforce the fact that we expect those to be challenged for the next couple of quarters, but our are seeing some signs of optimism that we may see some pickup in the second half of the year and get back to normalized volumes or at least the run rate start getting back to that from what we experienced prior to the first half of the second half of last year. And then I'm sorry, what was your second question?

Yes, sorry, I know it's few in there. Just Just on the attrition, I mean it sounds like it was mostly on the mall side plus M and A with some select clients not Quest wanted to see which you're seeing on churn?

Yes, absolutely. And we've talked about this industry in general is very sticky. We feel like our clients are even stickier with the value proposition that we provide and all the services. But we were challenged a little bit with that. We've talked about it and yes, you're right. A lot of it was from the assets held for sale at the mall business that we've struggled with and then also with some companies some clients that ended up getting acquired.

All right. Thanks for that. And then on the pipeline, you you kind of talked about continuing to see strength there. Can you just give us an update, especially with the macro, if you're seeing any notable changes on timing and just kind of how you're thinking about potential cadence of wins there moving forward?

Yes. So this is Perry Moss. I'm happy to address that. [indiscernible] When we first started our efforts developing our sales process, we We baselined the the old process and workflow the entire program So we could find the flaws fill the flaws and we essentially created an entirely new playbook We added a sales operations practice. We created a lead generation practice as well. The sales operations group is designed and when I say group, it's one individual. Designed to create KPIs and metrics. So we have full visibility not only into the total pipeline, but into every phase of the sales cycle for every sales manager and representative that we have.

So at any given time, we know know the various values of stage one, two, three and four. Stage four is we've won the deal. I think through this very disciplined process, we've continued to see the pipeline grow. So I would just say that the pipeline has grown significantly over the last year. As has the deal flow. And the pipeline continues to grow today. So I remain very, very bullish on on the pipeline and I think we'll continue to have good things to come.

Okay. Thanks for that. And then maybe last for me, just on RWS, it sounds like we'll hear more in the next month or two. But Quest thoughts on expected proceeds how much has that drag been on the business? And yes, just any further clarity on kind of timing there would be great. Thanks.

So two pieces. On the process, Aaron, it's we have a preliminary agreement in place and so can't really [indiscernible] We'll send out a disclosure once the deal is completed after we've finalized the agreement. It was a that part of business is really a non contributor. So from a bottom line perspective, it following away is not going to have an impact. I can tell you Brett and the team are very happy about the amount of effort that it took and the disruption it created and the inconsistency that it caused. It's an extraordinary small part of our overall business, but it took up in the Northern amount of time. And so I'm excited for the ability to not operate. There's no material bottom line impact that we lose and we'll talk about proceeds shortly.

Understood. Thanks for the color. I'll turn it over.

Thank you. Your next question is from Jerry Sweeney from Roth Capital. Your line is now open. Good afternoon.

Dan, Jerry, Bret, thanks for taking my call. Wanted to Perry, using your explanation on sales pipeline, building the processes around this, want to take that and maybe talk about the execution side, right? And we have this vendor management program There's cost about onboarding. Are a lot of issues that we're seeing on the execution front directly attributable to the vendor management program. Meaning if you get that fixed, does it make it that much easier for you to implement change and turn the execution side around? [indiscernible] a good question, Jerry. I appreciate that. I mean, I certainly think that we stand to benefit from the completion of that project, but that's that really hasn't hampered us as far as sales business development is concerned. But what we intend to do is take the same approach that we did with the the sales process and through our operational excellence initiative, take that process of work flowing discipline, key metrics, analytics, and measure everything that we have in the company. One of the things that we believe is when our employees know that they're performing, and they're hitting their KPIs they become more satisfied.

So I would say that the completion of that would certainly be helpful, but I don't think it's hampered us as far as growth is concerned. If that if that is your question.

No, no.

I didn't want to think it was hampering growth, but I'm just curious if vendor management system gets in place that helps the execution side you the ability to look at analytics, execution, etcetera, create KPIs. And really you know get you over the hump on the execution front? Yes.

And maybe Jerry, yes, what I would add is I don't see going forward the disruptions the temporary costs that we've seen as a result of it. I think you had situation where we added a ton of customers all at once while implementing a system that was new to the organization. And quite frankly, before we had a whole set of processes in place which could effectively manage the influx.

So what we're doing is is, as Perry mentioned, mapping out all our processes. We are going to improve all of them incrementally. As we go, it's less of a systems implementation issue as it is a process improvement. Certainly, there will be opportunities to invest in systems to enable technology to support our processes, but that shouldn't create the sort of disruptions that we've seen, but rather will enable us to expand margins and benefit from the scale opportunities that exist. But no, I don't see this being a we're already investing in technology. We're going to continue to do so to support the business. I don't think it's going to be as painful going forward as clearly as it has been this year given everything that sort of happened all at once. Does that No, I get what you're saying. I was hoping really, I guess the point I was saying get the vendor management system and that's going to give you the tools to really execute. Right?

Yes, it's certainly Yes.

And as Brett said, that we're almost complete there and we're seeing that zero touch benefits are in place and we're realizing them. [indiscernible] like to think I know the answer to this question, but it's a question that has gotten quite a bit. Kind of stated like this, the political environment has certainly changed maybe more so than some people anticipated and there's been some more aggressive approaches to thoughts on how people would do business or review the environmental world or environmental benefits? Are you seeing any pushback changes in that pipeline of business that you're executing against?

Yes, Barry, very good question. So So we certainly are seeing a greater focus on process efficiency needs and cost takeout from prospective clients. So I would say that sustainability and landfill diversion is still important to these customers. However, there's an added demand for being more efficient taking out cost. Which aligns directly with our model. So we see this frankly as a wonderful opportunity to to create more value for our customers. Got it. [indiscernible] [indiscernible] [indiscernible] You bring value to the table. [indiscernible] [indiscernible] [indiscernible] Okay.

Got it. I That's it for me. I appreciate it. Thanks.

Thank you. Your next question is from Owen Rich from Northland Capital Markets. Your line is now open.

Hey guys. One quick one for me.

How are you guys thinking about M and A in the near to medium term? Is this even on your mind given the greater focus on making those operational improvements and paying down debt Thanks, Owen. So first of all, the acquisitions that we did a few years ago as we mentioned, certainly added scale and scope They were critical at the time and they've enabled us to attract talented people into the organization. It's given us the ability to get at the table with terrific customers who we've added So they were a huge enabler for us. We still think strategically they're very viable but we've also been extremely successful at adding customers. So the percentage of contribution that comes from that is increasing or less. So I think we would still review them, but clearly our focus is on paying down debt and that's where our cash is going to focus. I think the organization is in a better place than we were before The issue is previously were around the integration of them and our team and capabilities with Brett and his team have added capabilities that we didn't have then. So I'm confident if we did them, we would execute and integrate them effectively, but to your point, I don't see in the immediate future us entertaining acquisitions.

I think our focus will be on driving the efficiencies generating cash increasing profitability and then paying down debt.

Perfect. Thank you.

Thank you.

Thank you. Your next question is from Greg Attit from Pinnacle Bank. Your line is now open.

Hi. Thank you for taking my questions. Dan, you said the you I think if I heard you correctly, you expect top and bottom line growth in 2025. What do you mean by that? Do you mean returning to growth at some point this year? Or you think 2025 grows over 2024 and is that revenue, gross profit, EBITDA, what do you mean?

Hey, Greg, this is Brad. I'll go ahead and take that Quest. First. I'm sure Dan will jump in as well. But yes, we certainly expect to continue to grow. As we talked about earlier, there will be some challenges in the first half of the year, certainly Q1. But with these initiatives coming to fruition with the cost savings and initiatives we have with the vendor management program being fully realized in those capabilities. We also talked about cost savings initiatives that that were announced today in the earnings release. Which is another $3,000,000 of annualized costs. There's a lot coming out of Q1. That we're very positive about. So we certainly expect to continue to grow in all those facets from the top line revenue gross profit and adjusted EBITDA.

Greg, I would add to what yes, I agree with everything Brad said and that's accurate. Fourth quarter was clearly disappointing. Obviously, And bear in mind, as you're sort of thinking about it, there were add backs related to non cash charges, the bad debt expense related to the business that we're selling, and these temporary costs, which we think of primarily run through and will continue at the beginning of the year.

So that's one. Second, our revenue engine is is working like it never has [indiscernible] We have an industry that and business model that is very sticky typically notwithstanding the unusual attrition that we've experienced this year that Brett touched on, entire portion of it, a third is I think as due to the customer the business that we're shedding, So we think the revenue engine is there. We think we're already seeing the gains, as Ed said, coming through the business. We will see the benefits of the cost reduction We're going to start implementing all these initiatives and continue to build upon that Perry and Nick and Dave and his team are already driving towards. So now withstood. So yes, so we do feel good about where we're headed and do think that we'll show growth both top and bottom line.

Thank you. And just to make sure I'm thinking about clearly because there were those additional charges in it was like the $1,500,000 for this quarter So when I look at EBITDA, but that wasn't added back to adjusted That's correct.

Okay. And so when you talk about growing year over year, you reported $14,500,000 of EBITDA. Are you talking about growing over that 14.5 or are you talking about growing over the 16 if I add back $1,500,000 from this quarter?

Yes. We looked those $1,500,000 dollars worth of charges as being kind of one timers. And not normalized going forward. So we would certainly expect comparison to be against $16,000,000 dollars Okay. Thank you. And then with just I liked hearing the focus on debt pay down. I think the most concerning thing right now and probably what has happened over the last six months months with the stock performance being pretty underwhelming has been been Quest haven't been able to generate cash has largely been working cap Can you maybe I Quest quickly go through EBITDA to free cash flow conversion if you do around, let's say, $16,000,000 of EBITDA, it looks like interest if your debt balance isn't reduced, is like in the range of $7,500,000 for 2025. Is that right?

Yes.

Okay.

And so that would leave you with like $8,500,000 of free cash flow before CapEx. How should we think about CapEx this year?

I think it'll be certainly at probably around the same rate especially with our IT spend. We'll continue as as Dan mentioned earlier, we'll continue to invest in that got a lot of opportunities to enhance our systems and provide additional efficiencies through capital investment on the IT side. On the equipment side, last year, was a little higher because we did have a platform purchase of compactors at the beginning of the year. Normalized going forward that's been more of about $500,000 run rate And so