Given the growth and operational initiatives, is the 50% conversion from gross profit dollars to EBITDA still fair, or is it higher now?

Management indicated that the conversion rate is now slightly higher, especially with wallet share opportunities, due to significantly lower implementation and onboarding costs for existing customers. “Yes, I think it's fair to say it's a little higher. It's certainly higher with the share wallet opportunities. As we've talked about before, the implementation or onboarding cost are significantly lower with the share wallet because we've already got these customers set up in the system. They know us. The transition goes much smoother.”

Could you provide an update on operational initiatives over the last year and any future areas of focus?

The focus has been on redefining and optimizing internal processes, standardizing work, and training staff to improve productivity and reduce remedial work. This has led to a 20% reduction in SG&A in the first six months of the year compared to last year, demonstrating the payoff of these efforts. “Yes, I mean, our focus has been on, you know, redefining all of our internal processes optimizing those, getting them documented, training our folks so we have very standardized processes. That makes the work a lot easier because everyone is doing, you know, the work the same way. It's easier for us to train. And the goal is... do it right the first time so there isn't remedial work to do.”

QRHC

Quest Resource Holding (QRHC) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 6, 2026

Source: earnings call transcript

Executive summary

Quest Resource Holding Corporation Q2 FY26 — Return to Top-Line and Adjusted EBITDA Growth

Quest Resource Holding Corporation delivered a solid Q2 FY26, marked by a return to top-line and adjusted EBITDA growth, driven by diversified customer wins and stabilizing industrial volumes. The company's operational excellence initiatives are yielding tangible results in cost control and cash generation, positioning it for improved financial performance despite a complex macro environment. Management remains cautiously optimistic about the improving operating landscape and is focused on continued debt reduction and margin expansion.

Highlights

Revenue grew by 8% year-over-year to $64.1 million, and 4% sequentially, driven by industrial volume improvements and new business wins.
Adjusted EBITDA returned to growth compared to both the prior year and prior quarter.
SG&A expenses decreased by 11% year-over-year to $8.2 million, and 2% sequentially, despite revenue growth.
Operating cash flow was strong at $4.5 million for the quarter, facilitating debt reduction.
Working capital days improved significantly to 5 days, from 12 days in Q1 and 19 days a year ago.

Concerns

Gross profit declined by 6% year-over-year to $10.4 million, primarily due to margin pressure with select industrial clients.
Gross margin decreased to 16.3% from 18.5% in the prior year, though it improved sequentially from 15.7%.
A non-cash goodwill impairment charge of $11 million was incurred due to a decline in market capitalization.
Sales cycles are elongating as potential customers actively monitor the current macroeconomic backdrop.

Guidance & targets

Category	Target	Timeline	Confidence
Revenue growth	sequential growth medium materiality	Q3 · FY26	High
Gross margin	flat to slightly up medium materiality	Q3 · FY26	Medium
DSOs	mid-60s low materiality	near-term	High

Deals & partnerships

Large national automotive parts retailer Significant wallet share expansion, 7-figure+ opportunity in commodities sector

One of four new share wallet wins landed in Q2, representing a significant opportunity in the commodities sector with higher margins from the start.

Customer in the food products market New customer win, diversifying portfolio outside industrial sector

One of several new customer wins onboarded over the past four quarters, helping to diversify the portfolio.

Large restaurant chain New customer win, diversifying portfolio outside industrial sector

One of several new customer wins onboarded over the past four quarters, helping to diversify the portfolio.

Large retailer New customer win, diversifying portfolio outside industrial sector

One of several new customer wins onboarded over the past four quarters, helping to diversify the portfolio.

One of the largest franchisees in the quick service restaurant industry New customer win, diversifying portfolio outside industrial sector

One of several new customer wins onboarded over the past four quarters, helping to diversify the portfolio.

Existing retail customer Wallet share expansion

Expansion with an existing retail customer, part of wallet share gains.

Customer in the automotive services and market Addition of several hundred new locations

Expansion with an existing customer, adding several hundred new locations.

Two other major customers Expansions

Expansions with two other major existing customers.

Risks & headwinds

Macroeconomic complexity and uncertainty ongoing

elongating the sales cycle

Mitigation:Staying disciplined, optimizing cost structure, and focusing on operational excellence; monitoring the environment closely.

Subdued industrial volumes ongoing

volumes still remain subdued relative to a few years ago at a few select accounts

Mitigation:Diversifying into non-industrial markets, focusing on wallet share opportunities, and optimizing cost structure.

Margin pressure with select industrial clients Q2 FY26

gross profit dollars and gross margin decline primarily isolated to margin pressure with select industrial clients

Mitigation:Offsetting impact by growing in non-industrial markets, optimizing service levels, winning incremental wallet share, and executing 'Land and Expand' strategy.

Geopolitical events leading to rising diesel prices ongoing

diesel prices have risen amid geopolitical events around the world

Mitigation:Limited impact on financials due to model resilience, ability to push back on cost increases, or pass through unavoidable costs to customers.

What to watch in Q3 FY26

Revenue sequential growth

Q3 FY26

Current 4% sequential increase in Q2

Target another quarter of sequential growth

Why it matters

Continued sequential revenue growth is critical to demonstrate sustained business momentum and recovery from prior headwinds.

As we look ahead to Q3, we expect another quarter of sequential growth in revenue.

Find out whether QRHC delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you provide details on the automotive customer win and comment on the confidence/growth in the wallet share pipeline, especially for industrial expansions?

Management stated the automotive win is a seven-figure+ opportunity in the commodities sector, offering higher margins from the start. They continue to pursue attractive industrial opportunities and have closed nine significant wallet share opportunities since late 2025, leveraging existing customer trust for easier sales and accretive gross profit.

“The opportunity that I referenced in the call is Is similar to a target for a new business account so seven figure plus I And it's in the commodities sector. So those opportunities come to us at kind of our normal margin and not the land and expand option. So they come in a little higher from the very beginning. So they help to drive incremental GP.”

asked by Aaron Spychalla · answered by Perry Moss

2 min read 5 chapters

Detailed narrative

Strategic Diversification and Customer Wins

Quest has successfully diversified its customer portfolio by focusing on non-industrial markets such as food service, retail, and hospitality. Over the past four quarters, the company onboarded several new customers, including a food products market client, a large restaurant chain, a major retailer, and a quick-service restaurant franchisee.

Additionally, Quest secured multiple wallet share expansions with existing customers, notably a significant seven-figure opportunity with a large national automotive parts retailer in Q2, which is expected to drive incremental gross profit.

Industrial Portfolio Stabilization

The industrial portion of Quest's portfolio showed positive trends in Q2, with sequential volume improvements and meaningful year-over-year growth from some of its largest customers. This marks an encouraging reversal from previous industrial headwinds. While volumes remain subdued compared to a few years ago, management is cautiously optimistic about the stabilization and views it as a new norm, continuing to monitor the broader macro environment.

Operational Excellence and Cost Control

Comprehensive efforts to streamline operations and improve productivity are yielding significant results. SG&A expenses decreased by 11% year-over-year and 2% sequentially, despite revenue growth. Year-to-date, SG&A is down 20% compared to the prior year. The company's model also demonstrated resilience to rising diesel prices, with limited financial impact due to scale and ability to pass through unavoidable costs.

Cash Flow and Debt Reduction

Quest generated $4.5 million in operating cash flow during Q2, driven by higher revenues, cost discipline, and optimized billing/collections. This strong cash flow enabled a voluntary $2 million early payment on term debt, contributing to a total reduction of $4.6 million year-to-date and $17 million over the last six quarters.

The company aims to further reduce DSOs to the mid-60s from approximately 70 and improved working capital days to 5 from 19 a year ago.

Sales Pipeline and Macroeconomic Headwinds

The sales pipeline remains healthy with promising opportunities, some in new markets that would further diversify the customer base. However, the macroeconomic backdrop is causing an elongation of sales cycles as potential clients monitor the broader environment. Management is confident in its positioning but acknowledges that closing these opportunities depends on improved confidence in the economy.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.