Good afternoon, ladies and gentlemen. And welcome to Quest Resource Holding Corp. Fourth Quarter and Full Year 2024 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference call over to Mr. Dave Mossberg, Investor Relations Representative. Please go ahead.

Thank you, Operator, 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 words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on Quest’s current expectations, estimates, projections, beliefs and assumptions, and involve significant risks and uncertainties. Actual events or Quest results could differ materially from those discussed in the forward-looking statements as a result of various factors which are discussed in greater detail in Quest filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties. Quest 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. In addition, in this call, we may include industry and market data and other statistical information, as well as Quest observations and views about industry conditions and developments. The data and information are based on Quest estimates, independent publications, government publications, and reports by research firms and other sources. 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 the 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 Friedberg, 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, where 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 topline 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 and 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…

Thank you, Dan. Today, I’d like to give you a bit of background on myself, why I joined Quest and 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 18 months ago, I’ve enjoyed a very successful 30-plus-year career 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 million revenue waste services company. But prior to that, I had operating roles, leadership roles at Oakleaf Holdings and at Smurfit-Stone’s 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 in growth 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’s 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 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 Brett.

Thanks, Perry, and good afternoon, everyone. During the fourth quarter, we made progress with onboarding 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 and I will discuss it in greater detail later in my remarks. But the bottomline is that we don’t expect any more adjustments related to this issue going forward. Revenue for the fourth quarter was $70 million, 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 million 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 five 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 onboarding 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 of onboarding activity to change. New clients secured during 2024 generated approximately two-thirds of their anticipated quarterly revenue run rate during the fourth quarter. 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 an approximate $9 million increase -- decrease in revenue…

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 will start with the positives. We want 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 million 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 contributed to a very disappointing year. While we continue to execute on behalf of our clients, we have not executed operationally. At the levels expected and much more is required. On our last call, we spoke about the transition to our new vendor management system, which caused greater costs on a temporary basis. 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…

Thank you. [Operator Instructions] Your first question is from Aaron Spychalla from Craig-Hallum. Your line is now open.

Yeah. 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 role out 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, it sounds like the attrition is stabilizing, was mostly due to some M&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 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 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, 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 cost that related to those is 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 into Q1, but very positive about the outlook coming out of Q1 and into Q2 especially.

Aaron, I would just follow. The vendor management system, which as Brett mentioned, is showing real progress. The zero-touch capabilities is a clear testament. We were starting from 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 just to confirm, we did say that and reinforce the fact that we expect those to be challenged for the next couple of quarters, but 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 or the second half of last year. And then, I’m sorry, what was your second question?

Yeah. Sorry, I know there’s a few in there. Just on the attrition, I mean, it sounds like it was mostly on the mall side plus M&A with some select clients. Not -- I just wanted to see what you’re seeing on churn?

Yeah. 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 in all the services, but we were challenged a little bit with that. We’ve talked about it, and yeah, you’re right. A lot of it was from the assets held for sale, 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 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?

Yeah. So, this is Perry Moss. I’m happy to address that. When we first started our efforts developing our sales process, we baseline 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 the various values of Stage 1, 2, 3, and 4. Stage 4 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 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 thoughts on expected proceeds. How much has that drag been on the business, and yeah, 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 comment about proceeds. Obviously, 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 bottomline 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 inconsistencies that it caused. It’s an extraordinarily small part of our overall business, but it took up an inordinate amount of time and so I’m excited for the ability to not operate it. But there’s no material bottomline impact that we lose and we’ll talk about proceeds shortly.

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

Thanks, Aaron.

Thank you. Your next question is from Gerry Sweeney from ROTH Capital. Your line is now open.

Good afternoon, Dan, Perry, Brett.

Hi, Gerry.

Thanks for taking my call. I wanted to -- Perry, using your explanation on the sales pipeline, building the processes around this, I want to take that and maybe talk about the execution side, right? And we have this vendor management program. There’s calls 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?

Yeah. It’s a good question, Gerry. I appreciate that. I mean, I certainly think that we stand to benefit from the completion of that project, but that really hasn’t hampered us as far as sales and business development is concerned. But what we intend to do is take the same approach that we did with 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 is your question.

No. No. I didn’t -- yeah. 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. Gives you the ability to look at analytics, execution and create KPIs, and really get you over the hump on the execution front.

Yes.

I guess…

And let me -- Gerry, I -- yeah. 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 a 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, 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. But 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…

… answer your question?

… 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? Now that, that…

Yes. It certainly...

I mean…

Yeah.

Yeah.

Yeah.

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.

Got it. I’d like to think I know the answer to this question, but it’s a question that has gotten quite a bit demonstrated 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 again?

Yes. Gerry, very intuitive question. So, we certainly are seeing a greater focus on process efficiency needs and cost take out 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 create more value for our customers.

Got it. You bring value to the table savings, not just the old goods.

Absolutely. Yes.

Yeah. Okay. Got it. That’s it for me. I appreciate it. Thanks.

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

Hey, guys. One quick one for me. How are you guys thinking about M&A in the near- to medium0term? 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 increasingly 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 issues 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 Kitt from Pinnacle Fund (sic) [Pinnacle Family Office]. Your line is open.

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

Hey, Greg. This -- I will -- this is Brett. I’ll go ahead and take that question first. I’m sure Dan will jump in as well. But, yeah, 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 and those capabilities, we also talked about cost savings initiatives that were announced today in the earnings release, which is another $3 million 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 topline revenue, gross profit and adjusted EBITDA.

Greg, I would add to -- well, yes, I agree with everything Brett said, and that’s accurate. Fourth quarter was clearly disappointing, obviously. Bear in mind, as you’re sort of thinking about it, there were bad 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 working like it never has before. We have an industry and a business model that is very sticky, typically, notwithstanding the uncarry -- unusual attrition that we’ve experienced this year that Brett touched on. In fact, a portion of it, a third is, I think, 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 Brett 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, notwithstanding, so, yes, so we do feel good about where we’re headed and do think that we’ll show growth both top and bottomline.

Thank you. And just to make sure I’m thinking about it clearly, because there were those additional charges and it was like the $1.5 million for this quarter. So, when I look at EBITDA, but that wasn’t added back to adjusted EBITDA. Is that right?

That’s correct.

Okay. And so when you talk about growing year-over-year, you reported $14.5 million of EBITDA. Are you talking about growing over that $14.5 million or are you talking about growing over the $16 million if I add back $1.5 million from this quarter?

Yeah. We look at those $1.5 million worth of charges as being kind of one-timers and not normalized going forward. So we would certainly expect the comparison to be against $16 million.

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 with the stock performance being pretty underwhelming has been just having been able to generate cash has largely been working capital. Can you maybe I just quickly go through EBITDA, the free cash flow conversion if you do let round -- let’s say $16 million of EBITDA it looks like interest if your debt balance isn’t reduced is like in the range of $7.5 million for 2025. Is that right?

Yes.

Okay. And so that would leave you with like $8.5 million of free cash flow before CapEx. How should we think about CapEx this year?

I think it’ll be certainly at the probably around the same rate especially with our IT spend. We’ll continue -- as Dan mentioned earlier, we’ll continue to invest in that. We’ve got a lot of opportunities to enhance our systems and provide additional efficiencies through additional capital investment on the IT side. On the equipment side, last year was a little higher, because we did have kind of a platform purchase of compactors at the beginning of the year. Normalized going forward that’s been more of about a $0.5 million run rate. And so, assuming that, I think, that’s a fair assumption going forward for this year on the equipment side, but we’ll continue to look at that and cash flow is an important piece in generating free cash flow, so that’ll be kind of a quarter-by-quarter basis on what we want to allocate.

Okay. Does it make any sense to package any compactors in the sale of the RWS tenant billing business? I guess where you are right now is your debt balance is probably higher than some people may want and reducing your debt is the thing that I’m the most focused on and I would like to see you stack cash, use the cash pay down debt and that be the focus I think if you do that I think the stock’s going to have a successful year in concert with the operational changes that you’re effectuating right now?

Yeah. Couldn’t agree more, Greg. One thing is I want to reiterate that our covenants were okay.

Okay.

That were -- that’s positive. From a working capital standpoint that has been really what’s kept us back from generating cash. We’ve got a lot of separate initiatives going on on the AR side. One thing that’s, we talk about the extra benefits that come from the vendor management program. It also allows us to get invoices processed through faster which actually impacts our billing side as well. So we’ve got some initiatives to pull forward the billing, get billing faster. We’ve been working with certain clients as well to bring in payments. So we don’t have any overall collectability issues and then we did talk about the $500,000 that was related to a bad debt that was related to the asset held for sale. So we do expect -- that’s held us back a little bit as well.

Okay. Thank you. And then maybe my last question is, you have -- Perry, you have a ton of experience, a great sales leader and thank you for helping bring on some of these new customers. Hopefully there’s the opportunity to optimize your service costs for those customers this year. You’re doing some changes with the reduction of force to try to focus on profitability. Why are you guys confident that right now these changes that you’re putting in place are going to fix the problems that have led to a little bit of up and down execution over the last probably two years or three years?

Yeah. Hi, Greg. Good to hear from you. Look, I mean, I’ve almost finished my first day in the job and I am very, very optimistic about our outlook. I’ve been doing this for a long time. I haven’t been doing it for a long time at Quest, but as I’ve looked throughout the organization, I see opportunities for improvement and that’s why I think we need to bring this operational excellence and disciplined approach. The analogy that I’ve used is, when you’re trickling water through a pipe, you usually don’t see any leaks, but when you really pressurize it, that’s when the leaks expose themselves. And with all the deal flow that’s come through this past year, it’s exposed some flaws in our processes. So this is why we intend to workflow, frankly, the entire company. And we’re going to do the same thing that we did in the sales process. We’ll identify the gaps. We’re going to fill those gaps. Every department and essentially every contributor, every team member will have KPIs that they will have to attain and we’re going to keep a much closer pulse on the business. So, we’re not going to continue to be surprised by unproductivity or customer losses. I think, you brought up a good point. I think a focus -- a key focus of mine is certainly billing our customers much faster and then also through the new vendor management team, paying our haulers according to terms, perhaps we’ve been paying a few ahead just to make sure that our customers are well served. So this is some of the benefit that we’ll get from Nick as well, because Nick is going to take his expertise and spend it with our vendor team, which is, I think, going to bring some additional benefits. So, I hope that answered your question. I’m happy to address anything else. But I just think bringing an operational excellence approach and creating a performance culture where we hold everyone accountable is going to make this business much better. The business isn’t broken. We’re at the stage where we just need to improve and I don’t see anything being insurmountable or difficult to do. We just have to execute.

So, Greg, let me follow up on that. Let me follow up. First of all, we got very lucky when Perry joined and when Ray described his desire to retire and we worked and built -- developed a process to find a replacement, and it was clear that operating efficiency, as well as growth were key, as I mentioned on our remarks. And saw we had Perry and were able to get him to take the job, and we found Nick, who has this operations experience. But the -- as we’ve talked in the past, this is really an invoice driven business. It’s information and data. We don’t make anything. We have good people. We just need to give them the tools and the processes. What we excelled at previously is executing on behalf of our customers and that’s been our focus, and we’ve done an amazing job at that. In terms of landing, expanding and retaining. We need to build that same discipline and process that we have on the customer side and the operations side and we never have. We may do. We have good people. Now we can give them the tools. We can build processes and then we can build systems to support that. So, that’s why we’re very confident, because we sort of know what the processing needs are and the processes we need to work on. In fact, obviously, a lot of it has been underway, because Perry’s not new here, and Brett and the team have been working away at it. But that gives us the confidence.

Thank you.

Thanks, Greg.

Thank you. Your next question is from Nelson Obus from Wynnefield Capital. Your line is open.

Yeah. Hi, there. Just in regard to client attrition. I think you said a third was from RWS, which means two-thirds and you identified M&A of a customer as being a factor. But have you had execution departures, and if you have, what have you done about it in terms of Monday morning quarterbacking?

Hi, Nelson. This is Brett. I’ll take that question. So, yeah, as you mentioned, just reiterate, a third of it was from the RWS business that’s held for sale right now. We have had some client attrition through customers being acquired. I’ll remind you that when we talked about lower volumes, when we talk about lower volumes and lost volumes, that also includes our industrial clients that we haven’t lost, but temporarily reduced volumes on the vendor side. I’m sorry, on the client side that have reduced their production volumes and thus revenues have declined with them. We look at that as temporary and improving in the back half of the year. I think, as Dan was just speaking, client facing, we’ve done a really good job and we don’t really see any operational risk with the clients. It’s more performing in the back office and executing on that side and then excited about the progress we continue to make. But we still look at this business. We know this business is very sticky. I think we started talking about that first question. It’s a very sticky business and our clients have a great relationship.

Okay. Fine. And my other question had to do with the compactor business. You said you’d be spending about a $0.5 million in CapEx, which sounds like steady state, but I would think that you’re either going to be in that business or not in that business. Is the jury out on that or is there a different take?

No. I wouldn’t say the jury is out. Absent of large platform businesses, the CapEx that’s going to be spent is really to support existing clients. That’s why we entered this space is because it’s complementary to our current client base and we’re able to sell into that group. So as long as we have that, but that’s kind of our conservative estimate on that. The sales team for that business has been doing great. We’ve seen a lot of demand. So just trying to extrapolate on a run rate basis on what it’s been, but it certainly could throttle up and if there’s an opportunity out there for a platform acquisition of just compactor’s equipment, it’s not necessarily a business, then we’ll look at that as we did. But bottomline, we still want to be very disciplined with our cash and pay down debt.

And Nelson, we’ve always been in the compactor business because we’ve always had them supporting our customers. There’s always CapEx that occurs in any event, because they -- as Perry was discussing last night over dinner, that helps increase stickiness with these customers. They enter to long-term contracts for the compactors and so they stick with you longer anyway and also the contracts expire different times than the overall contract so you always have a touchpoint with the customer. So it’s core and that it supports our existing customers and that’s where most of the CapEx has been. Your question is are we going to be aggressively growing that platform relative to other options? The returns are great, but clearly pay down debt is the focus right now.

I think that’s an important criteria to debt pay down. I think there’s a fair amount of consensus on that.

Agreed. Thank you.

Thank you. [Operator Instructions] Your next question is from George Melas from MKH Management. Your line is now open.

Great. Thank you. I just want to start by sort of thanking Ray, I think, for his leadership over many years and his always kind of kind communications and I thought he was a great face of the company. But let me now just talk a little bit about acquisition. Dan, you talked about how acquisition had been so important for the company and I remember when we talked at the Wealth Conference a couple of years ago maybe, you were quite positive on RWS and that’s turned out to be just like a [ph] total disaster. I’m just trying to understand what you guys have learned from that. Dan, from what you’re saying, I’m not sure you’ve learned very much of anything.

Thanks, George. I appreciate your comments. I appreciate your comments. So…

No. I’m being truthful.

I understand.

I’m not a happy camper right now, but I’m just telling you what happened.

No. I understand. I appreciate your frustration and I share it. As I said, but it’s not the issues that we faced aren’t RWS specific. We’ve tripled the size of the business over the past five years and grown gross profits hugely, but I understand your frustration and I share it. Now, the reality is a very small portion of overall RWS sort of is the root of the problem. The rest of the RWS acquisition has performed and has been integrated into the rest of the business. The commodity side of the business, the non-tenant bill business have been integrated and have continued to grow and perform. So the disaster was related to early on accounting diligence and the integration of those accounts. That’s created a ton of noise and a ton of disruption. And I totally agree and we’re hoping that that is now behind us. So, I agree with your frustration, but I’m really excited about where we’re headed. First of all, I share entirely your sentiments about Ray. Ray is a good friend and was a tremendous leader. He remains to be a tremendous leader. He built a culture here. He attracted phenomenal people and he’s retained them because of his personality and who he is. He’s been a great sort of asset to the business. I’m equally excited about where we’re headed, because we’re now focused on driving execution and growing our bottomline. We have customers, we have revenue, and we need to execute and drive the gross profits that we have into cash and profits. And I’m excited and confident that we’re going to do so. I think we’ve demonstrated that over the past, notwithstanding these changes. So, again, I share your frustration. RWS was not integrated well. We’ve worked through the accounting issues. It’s taken forever because of the thousands and thousands of invoices which are inherent in our business. The good news is Brett and his team have built controls over the past few years which have been tested, which have -- and who -- and that have performed. And we’ve invested in the system and an AP system which has enabled us to eliminate a lot of the issues related to it in terms of the number of touches of the invoices. So I think we have a stronger, more predictable model now. But I absolutely share your frustration. And as you can tell, the Board and I agree with you. I think we’re now positioned by shedding RWS, by taking the cost actions that we’ve taken, by implementing a performance-focused culture and mandate, and entirely have the organization focused on that. So, again, I apologize for the performance and I certainly share your frustration.

Okay. Maybe a few questions for Brett. Brett, can you carve out the churn parts of the revenue loss? You sort of lumped it together with soft revenue in the industrial markets. How much really was the attrition?

Was the attrition? So we talked we had $44 million of lost revenue, right, related to both lost customers and the lower volumes mainly from -- mostly from the industrial clients. A third of it -- as I mentioned previously, a third of it was related to that mall business. I think for the remaining two-thirds, it’s fair to just kind of cut that in half with a half of it remaining to the rest of it -- to other true attrition and the other related to those industrial clients and volumes that we expect to come back.

Okay. I was confused by the number you gave $4.4 million or like…?

$44 million is what we put…

… for the year.

For the year. Yes.

And how much was it for the quarter?

It’s about a fourth of that.

Okay. Okay. Great. And let’s see, the reduction in force, is that hardly related to the efficiencies of implementation of EMS and other technologies or is it on top of that or will you see further efficiencies in the future?

Yeah. We’ll see further efficiencies. This is not the end of our story in terms of finding additional efficiencies within the business. We had talked previously about some additional savings related specifically to this program. There’s a little bit of that in there, but those are largely still to come. There’s some temporary costs as well that were in there that will come out as well, and yeah, beyond that, it’s mostly just related to opportunities right now to kind of right size.

So we cut some G&A as well, as well as some of the individuals. Going forward, obviously this is a very scalable business and we expect to grow going forward. So it doesn’t mean that there will be reductions in the future. We will get leverage -- an operating leverage from the organization, from the foundation as we grow, as we introduce the process efficiencies. But the reduction right now is a combination of the selling of the portion of RWS, the temporary costs incurred and efficiency gains to-date.

Okay. And the selling of the RWS, what percentage of that 15% reduction force is that?

Again, we’re in the middle of selling and so I can’t disclose, but in any event, we integrated RWS. So most of the people are doing multiple things, so it’s really difficult to allocate how much of them are RWS, because a lot of them are working on a whole bunch of different things.

Understood. Okay. Great. And then, Brett, on the working capital, I mean, since the time of the acquisition of RWS, so I go back to mid-2021, so that’s a long time ago, but the DSOs are up 20 days from roughly 60 days to 80 days. What do you think is a normalized -- a normal DSO given your current customer makeup?

Yeah. Given the current customer makeup, George, I still expect us to get back to the mid-60s. Again, you got to back out any increases in working capital as related to new customers that we bring on, but I certainly don’t want to back off of that goal to get to the mid-60s. As I spoke to earlier, we’ve got a lot of separate initiatives. There is a little bit of customer interest in there, but largely I’ve been really one of the many positives that’s come out of the current sales process is much more disciplined in the terms that we negotiate with the clients. So we are seeing better terms overall. As I mentioned, the mall-related business has been challenging from a collection standpoint, and additionally, we’ve got -- we’re going to be able to build faster and we continue to work on. The team does a great job on day-to-day collection. So I still am optimistic that we can get back to the mid-60s near-term.

Okay. Great. That’s very encouraging. Thank you very much.

Thanks, George.

Thank you, George.

Thank you. There are no further questions at this time. You proceed.

Thank you. I appreciate it, Operator. So, first of all, I want to thank all of you for your interest in and support of Quest. I also want to thank Ray for his friendship, his commitment to the business and what he’s given to Quest and all the Quest stores current and past, and really thank him for everything that he has done. I also want to reiterate our commitment to aggressively driving change, increasing consistency, improving operations and generating significant shareholder value. We are all confident in the business, we have a strong value proposition, adding customers and we have a foundation to deliver higher margins, and where we can demonstrate scale. But clearly now is the time for execution, plain and simple. We know that. We know what we need to do and we’re focused on accelerating performance. We have added terrific people to our already existing team of great contributors. We will and have and will continue to take decisive action and look very forward to coming back to you soon with updates. Thank you. Thank you, Operator.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.