Quest Resource Holding Corporation (QRHC) Q3 2026 earnings review
Quest Resource profit margins rebound, but its sales stall
Quest Resource Holding Corporation, a US broker of corporate waste and recycling services, lifted its profit margins while its sales stalled. Third-quarter revenue rose less than 1% from a year ago to $63.8 million and slipped slightly from the second quarter, missing the sequential growth management had planned for. Even so, finance chief Brett Johnston pointed to better pricing and network savings with industrial clients that pushed gross margin up 1.5 percentage points from last quarter to 17.8% and reduced the net loss to $0.5 million.
| Revenue | $63.8M +0.7% from a year ago; -0.5% from Q2 |
|---|---|
| Gross margin | 17.8% +1.5 percentage points from Q2 |
| Profit before interest, taxes and one-offs (Adjusted EBITDA) | $3.4M +17% from a year ago |
| Total debt, net of financing costs | $60.6M up $0.6M from Q2 |
⚖️ Verdict: 🟢 Bullish
The story got better because industrial accounts stopped dragging down profit margins and overhead cuts lifted operating profit by more than half from a year ago. One caution: the earnings release gave no cash flow figure, and net debt edged up by $0.6 million from last quarter as unpaid customer bills grew.
The question now is whether the margin rebound reflects lasting vendor savings or a temporary drop in low-margin industrial waste volumes that also caused revenue to dip. If vendor savings drove it, profit will keep rising as late-stage national accounts sign; if lower industrial volume drove it, margins could slip back when those customers ship more waste. The revenue breakdown and cash flow statement in the upcoming quarterly filing will settle it.
🐂 Bull Case
Industrial Margins Rebounded From Last Quarter
Quest brokers waste and recycling services for big companies, and pricing pressure on its industrial contracts had weighed on its gross margin for the past year. This quarter, finance chief Brett Johnston said "Margin improvement with our industrial customers and the ongoing optimization of our service network drove a 150-basis point sequential increase in gross margin."
- Gross margin: 17.8% of revenue, up 1.5 percentage points from last quarter and down 0.3 points from a year ago
- Cost of revenue: 82.2% of revenue, down from 83.7% last quarter
- Gross profit: $11.4 million, up 9.1% from last quarter and 9.0% above the $10.4 million floor implied by management's prior outlook, by our math
The rebound matters because industrial renewals had diluted profit even when customer volumes rose in the second quarter. Narrowing the year-over-year gross profit decline from 5.5% in the second quarter to 0.7% in the third shows that vendor network savings and newer non-industrial accounts are catching up with those renewal discounts.
What to watch: fourth-quarter gross margin against last year's weak 15.5%. Holding near 17.8% would show the industrial margin fix is lasting rather than a one-quarter mix swing.
Overhead Cuts Lifted Operating Profit
Since late 2024, chief executive Perry W. Moss has run an internal efficiency programme to cut overhead and automate vendor billing. Johnston said this cost discipline produced "meaningful year-over-year SG&A savings" that combined with the higher gross margin to lift profit in the third quarter.
Selling, general, and administrative expenses (overhead and sales costs) fell 8.0% from a year ago to $8.5 million, dropping by 1.3 percentage points of revenue to 13.3%. Depreciation and amortization also fell by 0.5 points of revenue, so operating margin rose 1.0 percentage point from a year ago to 2.7%. Profit before interest, taxes, depreciation and one-offs (Adjusted EBITDA) rose 16.8% from a year ago to $3.4 million.
What to watch: quarterly overhead expenses as Moss begins investing in the team to chase pipeline deals. Keeping overhead near $8.5 million a quarter would let gross profit gains flow directly to the bottom line.
Existing Customers Offset Slow New-Account Sales
Because winning brand-new national accounts has taken longer over the past year, the waste broker shifted its sales push toward adding waste streams and locations at current clients. Moss said the team continued to "expand share of wallet with existing customers" while "building a more balanced and diversified business" outside heavy industry.
During the third quarter, the US group renewed four customer contracts and grew its non-industrial revenue from the second quarter. Adding services to current accounts carries lower start-up costs than onboarding new clients, which helped gross profit rise 9.1% from the second quarter even as total revenue stayed flat.
What to watch: the dollar revenue added by new business net of lost customers in the quarterly filing. A figure above $1.0 million from a year ago would show existing-client expansions are outrunning customer churn.
🐻 Bear Case
Revenue Slipped Sequentially and Missed the Plan
On last quarter's call, Johnston told investors to expect sequential revenue growth above the second quarter's $64.1 million, while noting that long sales cycles were delaying new national accounts. In the third quarter, Quest reported that its pipeline still had "several significant opportunities with national brands in late-stage discussions" rather than signed contracts.
Revenue slipped 0.5% from the second quarter to $63.8 million, missing the sequential growth plan and rising only 0.7% from a year ago. Because non-industrial revenue grew sequentially, the drop implies that industrial revenue pulled back from the second quarter, showing how hard it is for the business to grow while big pipeline deals remain unsigned.
What to watch: signed contract announcements with those late-stage national brands over the next two quarters. Failing to close them would leave revenue growth tied to industrial waste volumes.
Debt Stopped Falling as Receivables Crept Up
Quest carries heavy debt and has tried to free up cash by collecting customer bills faster, an effort that supports both its cash-cycle turnaround and its debt risk. Johnston said the team continues to refine working capital and will "maintain a strong focus on cash flow generation and debt reduction as we move forward."
- Total notes payable, net of unamortised costs: $60.6 million, up $0.6 million from $59.9 million in the second quarter
- Accounts receivable (unpaid customer bills): $49.9 million, up $0.4 million from the second quarter, or about 71.5 days of sales by our math
- Accounts payable and accrued liabilities (unpaid vendor bills): $42.5 million, down $1.3 million from the second quarter
- Other long-term liabilities, which include the lender exit fee: $3.5 million, vs $1.5 million at year-end
Unlike in the second quarter, when the release highlighted $4.5 million of operating cash flow and a $2.0 million voluntary loan paydown, this release gave no cash flow figure and showed net debt rising. Customer bills grew while revenue shrank and vendor bills were paid down, so working capital absorbed cash instead of paying down high-rate debt.
What to watch: gross loan principal and days sales outstanding in the third-quarter filing. A collection period still above 70 days would mean the mid-60s target is slipping again.
Risks this quarter didn't answer
Several standing balance-sheet and customer risks cannot be read from the earnings release alone and await the quarterly filing.
- Customer concentration: one client accounted for about 23% of revenue last quarter; the filing's revenue footnote will show whether that dependence grew.
- Goodwill write-down risk: Quest booked no charge this quarter after last quarter's $11.0 million write-down, but $70.1 million of goodwill still sits at 2.6 times stockholders' equity of $26.6 million by our math.
- Gross debt principal and lender fees: the balance sheet shows only net debt; the debt footnote will show gross principal on the 11.2% term loan vs revolving credit draws.
- New-business revenue net of lost accounts: missing from the release; the management discussion in the filing will show whether new wins beat attrition.
👓 Other Themes
Quest Hired a Technology Chief to Speed Optimization
Quest manages about 3,500 waste vendors and 1.2 million annual services across the US through its internal software platform. To speed up its network and back-office optimization, the waste broker announced the "addition of a new Senior Vice President of Technology with strong industry experience" during the third quarter, though the release did not name the executive or state any new software spending targets.
💲 Other KPIs
Interest costs fell 9.9% from a year ago and 2.5% from the second quarter. Lower debt balances and a first-quarter swap of $2.0 million from a high-rate term loan into a cheaper bank credit line reduced the quarterly bill, though interest still ate up all of Quest's $1.70 million in operating income.
The bottom-line loss narrowed from $1.35 million ($0.06 per share) a year ago to $0.50 million ($0.02 per share) this quarter. Last quarter's $12.22 million loss included an $11.00 million non-cash goodwill write-down that did not repeat in the third quarter.
Weighted average shares rose 2.1% from a year ago and 0.7% from the second quarter. Because the environmental services provider uses all available cash for operations and debt service, employee stock grants steadily increase the share count.
❓ Key Questions
Why did net debt rise in a strong cash quarter?
Third-quarter operating cash flow was $5.7 million a year ago, yet this quarter net notes payable rose by $0.6 million to $60.6 million and no voluntary term-loan paydown was announced.
Did industrial customer volumes fall from the second quarter?
Total revenue fell 0.5% from the second quarter even though non-industrial revenue grew sequentially. Investors need to know whether large industrial accounts cut waste volumes again.
What drove the 1.5-point sequential gross margin jump?
Johnston credited margin gains with industrial customers and network optimization. Did Quest raise prices on industrial renewals, or did low-margin industrial volumes simply drop out of the mix?
When will late-stage national brand deals sign and launch?
Management has cited late-stage discussions with national brands while long sales cycles delayed closures. Without new national accounts, revenue growth relies on existing clients.