Edited Transcript of QRHC earnings conference call or presentation 14-May-20 9:00pm GMT

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SCOTTSDALE May 15, 2020 (Thomson StreetEvents) — Edited Transcript of Quest Resource Holding Corp earnings conference call or presentation Thursday, May 14, 2020 at 9:00:00pm GMT

* Laurie L. Latham

* S. Ray Hatch

H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst

* Gerard J. Sweeney

* David M. Mossberg

Greetings, and thank you for standing by. Welcome to the Quest Resource Holding Corp First Quarter 2020 Earnings Call.

As a reminder, this conference is being recorded Thursday, May 14, 2020.

I would now like to turn the conference over to David Mossberg, Investor Relations representative. Please go ahead.

David M. Mossberg, [2]

Thank you, Grant, and thank you, everyone, for joining us on the call.

Before we begin, I’d like to remind everyone that this conference call may contain predictions, estimates and other forward-looking statements regarding future events or future performance of Quest. Use of the words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding Quest’s future opportunities for growth; Quest’s expectations for revenue, margins and profitability in future periods, plus industry position and industry trends; Quest’s prospects, outlook and business strategies going forward; and Quest’s beliefs regarding progress and timing.

Such forward-looking statements are based on Quest’s current expectations, estimates, projections, beliefs and assumptions and involve certain significant risks and uncertainties. Actual events or Quest’s results could differ materially from those discussed in forward-looking statements as a result of various factors, including changing market trends, reduced demand, the competitive nature of Quest’s industries and our belief that our asset-light business model and other essential nature of our services positions us well to weather the challenging COVID-19 environment, which are discussed in greater detail in Quest’s filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended December 31, 2019. You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties. You can find those documents on Quest’s website at qrhc.com.

Such forward-looking statements are presented as of the date made, and we disclaim any duty to update such statements unless required to do so by law.

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. The data and information are based on Quest’s estimates, independent publications, government publications and reports by market research firms and other sources. Although Quest believes these sources are reliable and data and other information are accurate, we caution that Quest does not independently verify the reliability of the sources or the accuracy of the information. In addition, Quest’s observations about the view of our industry conditions and developments are its own and

may not be supported or agreed with by other industry participants or observers.

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 the presentation of these non-GAAP financial measures is useful for investors’ understanding and assessment of the company’s ongoing core operations and future — and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliation of non-GAAP to GAAP financial measures are included in today’s earnings release.

With that said, I’ll now turn the call over to Ray Hatch, President and Chief Executive Officer.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [3]

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Thank you, Dave. Thanks to everyone for your interest in Quest. We hope you and your families are healthy and safe and we appreciate that you’ve taken time to join us to discuss our first quarter results.

I’m grateful that most of our customers are deemed essential businesses, meaning they stay open to serve the public need; in turn, we are also considered an essential business due to the need to serve them. This is a very difficult time for everyone and we’re not losing sight of the importance of our work. We remain committed to our mission of providing critical, sustainable services to our customers.

The negative effects of COVID-19 had a relatively small impact on first quarter results, as the drop in customer volume levels in certain end markets were only reflected during the last 2 weeks of the period. During the quarter, revenue decreased 4.9%, impacted primarily by low levels of production in the commodity waste stream at one of our largest industrial customers, unrelated to COVID-19. This had a negligible impact on gross profit dollars, which remained relatively unchanged year-over-year. While we expect a larger impact on our financial results in the second quarter, for the most part, our customers were able to stay open, but at reduced volumes.

That said, we took early action to protect our employees by moving operations to a virtual environment, utilizing the flexibility in our variable cost structure to quickly reduce costs and protect our balance sheet and liquidity. In addition, reviewing our results today, we’ll give more details on the actions we’ve taken to maintain customer service levels and protect the health and safety of our employees. We’ll also review the actions taken to mitigate the effects of COVID-19 on our business and the trends that we see in our major end markets.

Before I get into more detail, I’m going to turn the call over to Laurie to review the financials.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [4]

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Thank you, Ray, and good afternoon to everyone on the call. First quarter revenue was $25.3 million, a 4.9% decrease compared with the $26.6 million in first quarter last year. The year-over-year decrease included a decline in revenue from a commodity waste stream at one of our largest industrial customers. This decline was not related to COVID-19 and had negligible impact on gross profit. This impact was partially offset by increased services from both our continuing and new customer base, and as Ray mentioned, we also began to see a sharp drop-off in volumes in certain end markets during the last 2 weeks of the quarter.

Despite the decrease in revenue, we maintained gross profit at $4.5 million, relatively unchanged when compared with the first quarter last year. Gross margin for the first quarter was 17.9%, a 90-basis-point improvement compared with the first quarter last year. SG&A expenses were $4.4 million during the first quarter; this was a 4.6% increase compared with the same period last year. The year-over-year increase reflects investment in corporate development efforts and an increase in other G&A costs including increased stock-based board comp and some COVID-19-related severance costs. These increases were partially offset by lower professional fees.

Late in the first quarter and into the second quarter, we took action to lower our SG&A expenses and preserve cash, including discretionary spending cuts and reducing almost 20% of our workforce through attrition and furloughs. Thankfully, we were able to secure a paycheck protection loan under the CARES Act, which has allowed us to bring back most of the furloughed employees and maintain the continuity of our workforce in support of the essential services provided to our customers.

Net loss per basic and diluted share was $0.02 for the first quarter of 2020, compared with the loss per share of $0.01 for the first quarter of 2019. Our adjusted EBITDA for the first quarter was $534,000, compared to $796,000 during the same period last year.

Looking at the balance sheet, we have implemented cash conservation and expense management initiatives to maintain a strong balance sheet and provide ample liquidity. Our cash balance at the end of the quarter was $3.3 million, relatively unchanged from the beginning of the year and an increase of $1.2 million relative to the end of the first quarter last year.

We had $4.7 million drawn on our $20-million credit facility, which was relatively unchanged from the beginning of the year. We have total borrowing capacity of $11.2 million as of March 31, 2020.

We maintain strong working capital discipline and are carefully monitoring the status of our accounts receivable. DSOs were within the normal range for the last several quarters and, through our efforts, we have been able to keep receivables balances in order.

As I mentioned earlier, we qualified and applied for the Paycheck Protection Program under the CARES Act, and on May 5 received $1.4 million in loan proceeds. This loan has allowed us to bring back most of those employees furloughed and will allow us to maintain continuity of our workforce during this program.

So in summary, with the actions we have taken to maintain liquidity, we are well positioned to provide uninterrupted service to our customers.

And at this time, I’ll turn the call back to Ray.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [5]

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Thank you, Laurie. There are many important updates I’d like to cover today. Before I get into the actions we’ve taken, I want to give a little background in terms of how we are being affected by COVID-19.

It’s important to understand that we service commercial, not residential, customers. Unlike residential service, which typically charges a flat monthly fee, much of our revenue is ultimately based on volume of waste generated. Lower economic activity and lower volumes directly translate into lower revenue for us.

On the positive side, we have focused on maintaining our customer relationships, working with them as partners. Almost all of our customers are deemed essential businesses and remain at least partially, if not fully, open. While certain customers may have lower volumes of waste, they still have the same waste stream and the need for our services. We believe this flexibility and commitment to partnership is consistent with our value proposition and should continue to serve us well into the future.

We expect the impact of the lower economic activity will be much greater during the second quarter, when we will see the full quarter’s effect of the downturn. Since the end of the first quarter, the economic activity of our customers in the grocery retail industry has remained relatively stable. However, economic activity in many of the other end markets that we serve has dropped significantly. While in the last few weeks we’ve heard some of the evidence of stabilization and modest recoveries from these lower levels, it’s still too early to tell how long these conditions will last and how quickly these end markets will recover.

Next I’ll review in more detail what we’ve seen in terms of economic activity in our major end markets. I will note that we have several-week lag in how we see the revenue that flows through our business. To gain more timely insight into the current business trends, we are staying in close contact with our customers and closely monitoring market conditions.

In the grocery retail end market, most of our customers remained open, with the exception of a few traditional retail accounts. Grocery customers have stayed strong throughout this entire period and in some cases experienced modest growth. While a few of our traditional retail customers have been temporarily closed, other specialty retail customers that are classified as essential have remained open, and in certain cases have also seen gains in volumes.

We saw a significant decrease in the automotive repair and maintenance market beginning in mid-March, as there has been a significant decrease in consumer-focused automotive maintenance during the pandemic. Industry data would suggest that there was a 40% to 50% decrease in miles driven at the end of March and into early April compared to the end of February. One publicly traded automotive service provider reported that their sales trends decreased by 40% in the first half of April, but has seen an uptick from these levels. Anecdotally, we’ve heard similar trends from other consumer-focused customers in this end market.

While we’re discussing the automotive sector, it’s also important to make a point about the decrease in oil price and its effect on our business. A large part of what we do in the automotive maintenance space is picking up and recycling used motor oil. I would note that our profit contribution is based on the pickup and disposal service and are not tied to the price of the commodity. As such, the price of oil does not create a significant disruption in our margin profile.

Consumer demand has had less of an effect on the customers than the industrial end market; however, certain industrial customers have curtailed production and temporarily closed some of their plants due to breakouts of the virus. Most of our industrial customers are considered essential, and we expect that volumes will come back with the overall economy.

The restaurant vertical is a smaller and newer end market for us, but it’s also one of our fastest growing areas — our growth areas, prior to the pandemic. Obviously restaurants have been significantly impacted overall, but the extent has varied depending on the type. Most of our customers are casual dining and quick-service restaurants and have seen significant declines in business during the month of April. We expect that volume levels will pick back up as restrictions have begun to lift in most states.

Moving on to a discussion of the actions we are taking. First and foremost, we’ve taken several actions to protect the health and the safety of our employees. We were very fortunate that we are considered an essential business along with most of our customers and remain operational. More than 90% of our staff is working remotely. There’s a skeleton crew that continues to work from the office. We’re following CDC guidelines to protect the health and safety of those workers, and we’re grateful, but not surprised, by all our employees’ willingness to do what it takes to deliver uninterrupted service for our clients. This change in our operation has been seamless and was facilitated by investments we made last year to move our technology infrastructure to the cloud. Our call center has been remote for about 2 months now and we’ve seen no performance issues.

Next I’ll talk about the actions we’ve taken to mitigate the effects of COVID-19 on our business. We reacted quickly when we saw market conditions changing. Laurie discussed the actions that we’ve taken to address on the cost side. We play a vital role in supporting our customers during this crisis, and it’s important that we preserve the continuity of our workforce for the near term and to ensure the long-term viability of our business. Reducing costs and receiving the proceeds from the Paycheck Protection Program is helping us to do just that.

In addition to cost, we’ve positioned ourselves to grow. I want to cover our new customer pipeline first. The new business pipeline remains intact. We have a number of sustainability-focused pilot programs that have commenced with new and existing customers that look very promising. However, in this current environment, prospects have slowed their evaluations and many have delayed decisions until they are less bandwidth-constrained.

Given that we’ve put ourselves on solid footing, we are continuing to pursue opportunities that have arisen in the current environment. We’ve developed marketing programs focused on industries and customers, while our flexibility of service levels and financial strength all position us to differentiate ourselves. And without getting into specifics, we are developing programs that will customers more quickly reopen their businesses, as well as services designed to help them comply with new regulations to protect the health and safety of workers and/or patrons.

Regarding our M&A efforts, as we discussed in our last call, this is a new strategic initiative that we introduced this year. During the first quarter we hired a corporate development resource in this area and are committed to enhancing shareholder value through disciplined acquisitions where they make sense.

In summary, we are unable to give specific guidance; clearly, we are expecting a significant decrease in revenue and profitability during the second quarter. We are seeing early indications that during the second quarter our customers in certain end markets may begin to bottom out and that economic activity levels will begin to recover as states’ economies reopen. However, it’s impossible to definitively predict the timing or the extent of that recovery.

We’ve taken several actions to mitigate the extent of the downturn in economic activity. The first actions are those that we’ve completed during the last several years. We set our priorities and launched a disciplined process for driving shareholder value with a focus on diversifying our customer mix and pursuing differentiated business. Our approach has allowed us to enter this period of uncertainty in a position of relative strength and financial stability. As we described, we have also taken actions to cut costs, introduced new programs and services, and are actively working to keep our pipeline of new business intact. With these actions, combined with the flexibility of our asset-light business model, a strong balance sheet, the strength of our customer relationships and the essential nature of our services, we believe we are well positioned to weather this difficult period.

Longer-term, we believe the trend toward sustainability will continue, and we believe Quest is well positioned to benefit and in some cases take a leadership role in effecting the (inaudible) growth trend. While our customers and prospects may be temporarily distracted by the COVID-19 virus, we believe that companies will continue to deploy sustainability programs in order to divert more waste from the landfill and reduce their environmental footprint. I look forward to updating you on our progress.

We’d now like the operator to provide instructions on how listeners can queue up for questions. Operator?

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Questions and Answers

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Operator [1]

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Thank you.

(Operator Instructions)

And the first question is from the line of Amit Dayal with H.C. Wainwright.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [2]

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Just to begin with, you talked about drop in volumes with all of your customers. Could you share a range relative to the normal levels by which these volumes have dropped?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [3]

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Yes, Amit. Due to the diversity of our customer base, it’s hard to give you a range. Some of them — I think we mentioned the automotive sector was hit — the consumer automotive sector, in the script, was hit probably hardest, maybe. And I think the reductions are not too (inaudible) some of the stuff we talked about, but they’re pretty significant, all the way up to we have customers that have actually grown a little bit during this time, so since we cater to so many of those segments, it’s difficult to give you a range, but that’s kind of best to worst right there.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [4]

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All right, I understand. Thank you for that. Have you lost any customers, really? Are you — have you been able to mostly just retain most of the relationships?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [5]

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Yes, that’s a great question, Amit. This is an interesting time, and no, I’m happy to say that we haven’t lost any customers. We’re in constant contact, and I don’t — personally speaking, I don’t think our partnership has ever been stronger than through this difficult time with our customers. So while there’s obviously volume losses and revenue losses, they’re not client losses; they’re typically just related to the impact of the virus itself.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [6]

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Understood. Do you see early recovery happening in a specific end market for you guys, or is this just going to open up gradually across all segments for you?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [7]

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Well, I think — again, we talked about some segments. We’ve got — now what did we talk about? Automotive, industrial, grocery retail and food service — and what’d I miss? Is that —

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [8]

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No, those are the primary ones that we —

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [9]

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Those are the big ones. So when you look at those, I guess what I’m saying is, as economies reopen — and now we’re into opinion space, because none of us have a crystal ball — we really feel that as miles driven go up, it’ll have a direct positive impact on the consumer automotive side. Miles get driven based on places opening up and we have places to go. And so I think that’ll be a direct correlation to that. Restaurants and food services have faced a lot of challenges, as you know, and I think — my guess is they’ll adapt well as these states open up, but they’ll possibly have a longer recovery than some of the other areas, some segments. Some of them are doing really well.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [10]

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Some of them are quick-service, just faster —

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [11]

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Yes, the ones that are doing a lot of take-out and drive-through have done quite well. But when you step into the food service segment, again, a very diverse segment, the food service space. When you step into full-service restaurants, obviously much more impactful and a longer recovery. So I think we’re going to be all across the board on it, but I do believe when you mix them all together, I think you should see a general correlation between the recovery of the economy and the recovery of our customers because they’re across — pretty diverse.

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Operator [12]

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And the next question comes from the line of Gerry Sweeney with Roth Cap.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [13]

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As much as you can or want, could you provide, maybe broad-brush terms, maybe the size of each market in percentage terms? Like, restaurants, quick-serve, 10%; automotive, 30%; like that. Just — it helps us sort of bracket out some of the impact when we’re looking at revenue and (inaudible).

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [14]

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Well, the — go ahead, Laurie.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [15]

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Well, we don’t really report those kinds of percentages, but we did talk about all of those segments are — had some significance in our business. It certainly would be more than 10%, any one of those 5 that we talked about, wouldn’t you agree, Ray?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [16]

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Oh, yes.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [17]

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So the — to the extent — I think I could add to what Ray was saying, is that several of our clients — the grocery part of it is doing very well. They’re very busy. We have some specialty retail that has stayed completely busy also, open, all locations open.

The good news is, there’s almost — even in our restaurant clients, all the automotive, those locations are staying open. And so their ability to rebound on a region-by-region basis as the economy’s coming back allows for them to immediately get the uptick because they stayed open. We have — so I think that where we see some of the more impactful parts is just from the lack of miles driven by consumers out there, and that’s one of the bigger areas that — we’ve already referred to some public information out there that shows the impact there.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [18]

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Yes, Gerry, those buckets — and I think we’ve said this before — basically industrial, retail grocers and automotive — all 3 of those are vital to our business and they’re significant parts of our business. Food service is approaching that, or was. We anticipate it doing it again. But when you look at those buckets, that’s pretty — you look at that, it gives you a pretty good glimpse into our business. That’s probably the best I can give you right now.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [19]

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All right, that’s fair. That’s good, I can take that and work with it. Shifting gears a little bit to the balance sheet, you still — I think, $11.2 million of availability. You had — shoot, I don’t have it — I’ve minimized the balance sheet — several million on the balance sheet, but you also got that $1.2 million most recently. So (inaudible) liquidity —

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [20]

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(inaudible) $1.4 million.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [21]

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$1.4 million, my apologies. And still in context with your banks, that liquidity should stay in place, and you don’t have any concerns, have you thought about even pulling down your lines a little bit just to bring it in-house for safety’s sake?

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [22]

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Well, you know, Gerry, one of the things we did is increased sort of our average cash balance, but our whole line is readily available to us, and we draw against it as needed. The nice thing is that — is it does float with us, or revenue, up and down, and — but the availability is all there for us. So drawing down is — and I could go over with you the functionality of how that line of credit works if you’d like, but we’ve increased our working capital from about $3.8 million in Q1 up to $5.6 million as of the end of Q1, and so we have taken some steps and our working capital has increased there, plus the actual availability that we have on our borrowing base has slightly increased too.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [23]

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Yes, that’s fine, I got it. And then looking forward, if this stays a little bit more challenging than we would all like, what other potential leverage do you have to manage costs? Obviously you mentioned you furloughed up to 20% of your employees. I was (inaudible).

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [24]

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Well, one of the first things to keep in mind, Gerry, is 100% of our cost of sales is variable. So that’s one of the things we’ve always talked about with our asset-light model, is that as a business reduction would occur, our cost of sales comes down proportionally with that. And that’s due to the fact we are not heavily invested in assets or large amounts of labor that are out in the field. So therefore, we’re able to take that really almost dollar-for-dollar adjustment as that business comes down some, and then we do have variability in our, then, SG&A here at the facility, corporate office, and we’ve been able to take out some of that labor, as we’ve mentioned. We have room to modify that if — depending on how the business outlook is through this year. And we’ve also deferred certain capital expenditures, really just deferring most of that till next year, just spending absolute dollars on things that are required.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [25]

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Gerry, Laurie makes a good point; so, so many people have got a lot of their arrangements with subcontractors who’ve got some floors or some baseline costs that don’t change. Ours are directly variable to the business, so there’s a direct correlation, and that really helps us there, as far as being able to maintain a margin and control cost of goods, which of course is the biggest cost.

Secondly, internally, the SG&A costs, and Laurie just spoke to that. I mean, even down to the point where our travel is not — was a fairly decent expense for us, as you can imagine, being a national company based in one city, and travel is pretty much nonexistent now. We’ve levered that down.

But we looked hard — I mean, obviously, we looked quite hard at every expense line, and I’m proud of the team for the amount of lever that has been able to happen. And as I mentioned in the script, we feel pretty confident between that, the liquidity, the things that we had done going into this crisis that we’re positioned — I don’t want to say for as long as it takes, because who the hell knows that, but definitely as well as we could be, and we feel confident that we’ll be able to ride that storm out, and with our customers as well, and come back with them.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [26]

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Yes. And I did get that. Just had to ask, so.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [27]

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Sure.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [28]

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But actually, speaking of one thing on the revenue side, and I apologize — I should have asked this, probably, out of the gate. But your costs are 100% variable with the — or nearly, with your service providers, but do you have any minimums in any of your contracts where even if they see a slowdown, where you still get a minimum-type payment within (inaudible)?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [29]

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With the subcontractors, you mean?

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [30]

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No, no, I know the subcontractors sound like they’re variable. But do you have any fixed cost — or fixed, like, minimums with the clients that you would get paid even if there was zero pickups, or something like that?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [31]

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Well, Gerry, it’s important to — I think we — to make a distinction. There’s 2 big buckets that we generate revenue for — scheduled services and then volumes. And the vast majority of our stuff is volume-related. It’s going to vary. We don’t have — like, we have a competitor in the space that charges stop fees; that’s not part of our program. So it’s, I would say, by and large, we’ve flowed up and down with the — how well our clients are doing in that case. We do have scheduled services that are more stable, but it’s a lesser percentage of our business.

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Operator [32]

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And the next question comes from the line of Sarkis Sherbetchyan with B. Riley.

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Sarkis Sherbetchyan, [33]

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Just want to kind of circle back on the subcontractors. Any kind of insight you can provide us on how their network is doing and serving you in this time? Any kind of pain points, or is it kind of business as usual in that regard?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [34]

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Yes, that’s a great question. Just to give you an example, Laurie and I and Dave Sweitzer, our COO, we speak every day and evaluate a number of pieces of our business, and that’s right at the top. We’re constantly in touch with those guys. We feel a partnership with them and we do the best we can to bring them the tonnage and the efficiency to help them, and we have — as a matter of fact, we just had this conversation yesterday afternoon. We haven’t seen any wavering in that regard. They’ve weathered the storm as well. I’ll be honest with you; I expected more issues there than we’ve had, so I’m very happy to say we haven’t had any impact in our ability to serve our clients through our subcontractor base.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [35]

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And we do have steps, also.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [36]

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Precisely.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [37]

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You might address that.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [38]

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Yes. One of the things that Laurie just referenced, in most of the cases, maybe the vast majority, the different materials we serve, we have more than one level of service, meaning we have alternatives within those markets, at least a secondary if not a tertiary, relative to that. So we’ve really — and that’s one of the things I think that appeals to our client base as well, is that there’s no single point of failure. We have opportunity to react to changes and negative impact within our sub-base, but that hasn’t been called for to this point, and we’re hopeful that it won’t be.

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Sarkis Sherbetchyan, [39]

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Thanks for that. That’s super helpful. And if I can kind of maybe think about the actions you’ve taken, at least on the cost side for Quest, I understand the COGs line is variable with the volume and the tonnage, but if I specifically focused on kind of the SG&A level, you’ve taken action; I think just looking at the March quarter, you might need, call it, $4 million to $4.5 million of gross profit to maybe break even or so. Can you maybe help us understand what your breakeven rate is today?

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [40]

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Well, we’re — actually, we haven’t completely estimated that. But our breakeven rate — so I think what I’d like to do is maybe get back with you on that question if you wouldn’t mind.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [41]

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Yes, sorry, yes. If you don’t mind, can we get back with you on that?

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Sarkis Sherbetchyan, [42]

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Yes, that’s fair. And I guess one more from me is, in this kind of environment, would you expect to at least generate a little bit of cash, or would you be a consumer of cash?

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [43]

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It’s safe to say we should be generating cash. We should not be a consumer of cash.

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Laurie L. Latham, Quest Resource Holding Corporation – CFO, Senior VP & Secretary [44]

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So — yes. Yes, correct. Based on our outlook, it looks like we will continue to generate cash through our operations.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [45]

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Yes, we approached our adjustments and costs with that in mind to make sure that that was the case, and we feel pretty confident the adjustments that we’ve made will yield exactly that.

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Operator [46]

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And there are no further questions at this time. I will now turn the presentation back to the speakers.

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David M. Mossberg, [47]

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All right, thanks, everyone, for joining us on the call. If you have any follow-up or questions, feel free to contact us. My number is on the bottom of the release. Thanks. Bye.

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S. Ray Hatch, Quest Resource Holding Corporation – President, CEO & Director [48]

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Bye.

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Operator [49]

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And that does conclude today’s conference. We thank you for your participation and ask that you please disconnect your line.

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