QRHC Q2 Deep Dive: Operational Changes and Margin Pressures Shape Outlook

Waste and recycling services provider Quest Resource (NASDAQ:QRHC) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 18.6% year on year to $59.54 million. Its non-GAAP loss of $0.04 per share was significantly below analysts’ consensus estimates.

Is now the time to buy QRHC? Find out in our full research report (it’s free).

StockStory’s Take

Quest Resource’s second quarter results reflected the impact of both market headwinds and internal restructuring. Management attributed the year-over-year revenue decline primarily to ongoing weakness in the industrial end market and the sale of the mall-related business. CEO Daniel Friedberg acknowledged, “Some of the issues were market-based, but many were self-inflicted operational issues.” The quarter also saw margin pressures during client contract renewals, as clients sought cost reductions amid broader economic uncertainty. Management emphasized that while these challenges weighed on performance, early benefits from cash generation initiatives and operational improvements have begun to materialize.

Looking forward, Quest Resource’s outlook is shaped by cautious optimism about ongoing operational improvements and incremental contributions from new and expanded client relationships. Management expects near-term margin pressure to persist, especially as client renewals remain cost-sensitive and industrial volumes stay challenged. However, CFO Brett Johnston said, “Our efforts to improve processes and systems are allowing us to bill more quickly, and we continue to tighten up on collection efforts,” which the company believes will drive further improvements in cash flow and profitability. Management is also focused on optimizing service delivery for new and existing clients, aiming to offset headwinds and return to sequential growth in the fourth quarter.

Key Insights from Management’s Remarks

Management linked the quarter’s performance to softness in industrial end markets, margin pressure during client renewals, and early-stage benefits from operational initiatives. Forward guidance reflects continued uncertainty in client volumes and pricing.

• Industrial sector weakness: Revenue fell sharply due to ongoing softness in industrial client volumes, which management expects to persist alongside broader economic uncertainty. This sector’s performance weighed heavily on the overall top line.
• Mall-related business divestiture: The company highlighted the sale of its mall-related business at the end of the first quarter, noting that this accounted for a significant portion of the sequential revenue decline. Management does not expect further impact from this divestiture.
• Margin pressure on renewals: Management described increased margin pressure during contract renewals, especially as clients emphasized cost savings over sustainability initiatives. However, Quest attempts to offset lower margins by securing a greater share of client business or improved terms.
• Operational improvements underway: The company reported initial benefits from workflow enhancements, including a 200% improvement in cost of sales in certain markets and a 46% improvement in timely vendor payments. These initiatives are expected to support long-term profitability.
• Cash generation and debt reduction: Cash flow improved as process changes accelerated client billing and vendor payment cycles. Year-to-date, Quest reduced debt by $6.6 million, with further paydown expected as operational efficiencies take hold.

Drivers of Future Performance

Quest Resource’s forward outlook is shaped by continued operational enhancements, cautious demand expectations in key sectors, and a focus on cash flow improvement.

• Ongoing margin headwinds: Management anticipates further margin pressure in the near term due to client renewals at lower rates and continued cost sensitivity in the industrial sector. These pressures are expected to be partially offset by ongoing operational improvements and cost optimization efforts.
• Incremental growth from new clients: The company expects new client wins and expansions with existing customers to contribute incremental revenue and gross profit, especially as onboarding costs subside and service optimization efforts ramp up. Management believes this will support a return to sequential growth in the fourth quarter.
• Cash flow and debt priorities: Quest is prioritizing operating cash flow generation and aggressive debt paydown, facilitated by faster billing, improved collections, and tighter vendor payment processes. Investments in automation and process improvements are expected to further enhance cash conversion and balance sheet strength.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) execution of operational initiatives and their impact on gross margin recovery, (2) the pace of new client onboarding and expansion within existing accounts, and (3) sustained improvements in cash flow and debt reduction. Additional focus will be placed on how management navigates ongoing industrial sector headwinds and margin pressures during contract renewals.

Quest Resource currently trades at $1.97, in line with $1.96 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

Now Could Be The Perfect Time To Invest In These Stocks

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.