Okay, we're gonna go ahead and get started with the next presentation. First off, thanks everyone for joining us today in person and on the webcast. Up next, we're gonna have one of our investor relations clients. It's Quest Resource Holding Corporation, QRHC, traded on the Nasdaq. Presenting with us today is the CEO, Ray Hatch, and the CFO, Brett Johnson. Thanks.
For those of you who didn't figure it out, Joe just ran up the stairs, so that's why he sounds that way. I was impressed, too. I waited for the elevator. Good afternoon, everybody. Thanks for being here. I'm Ray Hatch, and Brett Johnson is with us, our CFO. We'll get a chance to do the best part of the job, is to represent all the Questers back home, talk about what they're doing and what they've been doing, and it's a great story. So let's just jump into it. Do the boilerplate. We're a national provider of waste and recycling solutions to large businesses. We're based in actually, The Colony, Texas, just north of Dallas, QRHC. Joe just said all that, so I'll skip it. We help our customers meet a business efficiency, sustainability, ESG goals.
Our customers are all B2B. We only do businesses, typically Fortune 1000 companies. Usually they have a lot of locations across country, complex waste streams. We have over a hundred plus waste streams we deal with today, and we have a national footprint. The elevator pitch is that we can handle virtually any waste stream generated by business in any zip code in the US. So that makes us relatively unique as far as our value proposition. The materials that we handle typically are grouped like this: general recyclables, you all know what these are, you know, cardboards, plastics, metals, all things like that, single stream.
Automotive waste, this is one of the things that differentiates us from other waste service, national waste providers that you follow or look at. Used motor oil, it's a big commodity we handle, used oily water, antifreeze, used oil filters, absorbents. So, for example, we have clients, fleets. We do their fleets. We do a lot of automotive dealerships. We do a lot of chain, oil change, car maintenance companies, tires, that type of thing, and so the things associated with that. Oh, we also do, like, body shop chains, those types of things, so absorbents, chemicals, things that require regulatory compliance. We do a lot of that stuff. That's a whole lot more complicated than just throwing stuff in the trash can and hauling it off.
Food waste is becoming a bigger and bigger area for us, and we believe it's gonna be significantly bigger going forward. You're all aware, I'm sure, of food waste issues are that they fill up the landfill so much, this landfill diversion. Organic waste going in the landfill, by and large, all of that, something else can be done with if you choose to as a generator. We deal with a lot of grocers on their food waste. We do food manufacturers as well, but so that's a real growing piece for us. And also that includes things like used cooking oil, stuff you don't think about or you don't want to, the grease traps and vent hoods in the kitchens.
So then you go into regulated waste, which I mentioned a few, combustibles, corrosives, even e-waste and light bulbs and batteries. These are all things that need to go somewhere else other than the landfill. And then construction is a part of our business as well. You see those big open-top containers on commercial construction sites? We manage those. We pick them up when they're full, we take them back when they're not, and also usually, hopefully, divide them up as far as what type of materials are going in them. So that's a lot of what we do, the materials we do it with, or the process, the services we offer. And now here's a little page about who we do it for. This is just a sampling of our clients.
This page is not to show you who all we do it for. So the most important thing is two things. Your takeaway should be, one, these are brands that most of you know all of them. These are high-quality companies, been around a long time. They're gonna be around a long time in the future, and they trust their waste and there's a lot of trust with a waste services company, too. They trust us to take care of their business, keep it trash-free, keep it going, keep them protected from regulatory issues, that type of thing. So these are the kind of brands that you want trusting you. If you're a small cap CEO up here talking to you about the company, it makes me proud. The other takeaway is the diversity of the type of end markets that we serve.
So many companies serve a specific or end market that's relatively narrow. We're pretty broad. So you look at this, you got automotive dealer, you've got fleet, you've got fast food, you've got grocers, car washes, commercial properties, I mean, and there's a lot more. But that gives you an idea that we go across all these waste streams, or, or excuse me, all these end markets. And the reason that's so important, I think, is because there's one economic tsunami, whatever it is that hits us, it's probably not gonna wipe us out. When COVID hit us, we didn't know what to expect. I don't think any of us did. But when COVID hit us, our automotive business, for example, service business, went totally out. People weren't driving. So if you're not driving, you're not changing your oil.
If you're not changing your oil, you're not buying new tires. The list goes on and on. But at the same time, our retail grocers, multifamily, a lot of other segments we had went up. So that's why you should invest in a company that has a lot of diversity there. So a little bit of our history, our business transformation. Back in 2016, we were pretty much singularly focused on just big box retail and frankly, one customer in particular. That's what we were based on. 45% of our revenue, I think, was with that one client, and today it's 0%. So we really shifted toward differentiating our services, going after more complex waste streams.
All clients are high-value clients, but what we're looking for is clients that had high value in the services that we offer, which is a lot of things like sustainability, data reporting, regulatory compliance, those things besides just cost. They still care about cost, but we want them to also we want clients that care about other things as well. We had a 40% three-year CAGR in rev. We entered into a lot of new end markets that we weren't diversified into before, as I mentioned, and we focus on, you know, value-added services and, driving our EBITDA margins north, and this chart shows that. So what problems do we solve? Anytime somebody tells you they're a B2B company, then they need to be able to tell you from a B2B environment, what problem are they solving?
In B2C sales, a lot of times you're satisfying wants. You know, you want this type of car or purse, whatever it happens to be. In B2B, typically, we're satisfying needs and solving problems. So improved sustainability is more important than ever. You guys all know this. You don't need me to talk to you about ESG, and there's varying opinions of whether you like it or not, but that really doesn't matter. The fact is, these companies are having to deal with requirements around that. And to be honest with you, a lot of the really good companies, the well-run ones, were already doing this before ESG became a buzzword for somebody to criticize. Being environmentally sensitive typically is done by good companies. Bad companies don't care, and there'll be other problems besides their environmental practices.
So that growing requirement there has been a nice tailwind for us, and so we solve that problem. Cost is always a problem. Any of you that follow our industry, our trade, you listen to the big guys, we call them the vertically integrated waste providers. You know who they are. You listen to their quarterly calls, they always talk about margin enhancement. If you listen a little closer, there's only one method of margin enhancement, and that's raising costs, tipping fees, and landfill costs. That's it. Their margin enhancement is 100% passing costs on to clients, not reducing the cost side. So they continue to raise costs at landfills, which we love. The higher landfills get, the more economical and the more sense alternative to landfills become. State and city, state, and local regulation.
Most of the regulation is driven by localities, not federal, that we deal with. Those tailwinds are, they're burdensome at best for these businesses. They need the ability to have data tracking, showing what they did, with what materials, how much of it, what do they do with it, and we're able to provide that for them. Non-compliance, as we said, can lead to a large fine. It doesn't matter how cheap your provider is, if you get hit with a couple large fines at your location, that wipes out anything that that cheap provider was able to do to them. Decentralized, inconsistent waste, this is the problem they have. Many of our large corporations that we deal with, have a decentralized process when it comes to waste, managing waste and recycling, which I find amazing.
If you own a franchise, if you own a hamburger stand that's part of a big national brand, you can't deviate anything. You. They tell you what patty to buy, what bun to buy, what french fry to buy, what uniform your employees are gonna wear. They control everything. But the one thing they let these guys do is manage their own waste in the back, which is. So it's totally decentralized. These companies, when they are decentralized like that, you don't get to leverage your national volume, so you can leverage your costs down. You have no idea about the execution on any sustainability plan you have. You don't have any way of controlling or knowing your costs.
So by bringing decentralized companies, whether it comes to waste, into a centralized environment involves savings and control, which really is valuable to them. And of course, we measure the E in ESG. The environmental aspect and the primary impact we have, of course, is on diversion from landfills. I know most of you have heard CEOs of companies like grocers and others. They have a zero waste to landfill goal, and it's usually whatever year it is, the year after they plan to retire, 'cause it doesn't happen. It's hard. That last 10% is really tough. But we help these folks not only be able to execute against it, but be able to report on it as well. So we really talked already a lot about what we do.
I didn't mention at the front side, we're an asset-light company, so we utilize a tremendous group of subcontractors. We have several thousand that are contracted to us around the country that provide different services in different geographies. So the complexity of having a national footprint on your company as a customer, we take on that complexity of finding all the right service providers for you. Then, yeah, this is part about the asset-light model. Just to give you an idea, you know, in our asset-light model, there's probably 25,000 trucks, 1,000 facilities. I think this number is probably close to 1.5 million services per year that we perform. A service is defined as, you know, a truck pulling up behind a location and picking up material, taking it somewhere.
So that's kind of a staggering number, how much we're able to do. This bullet point is an important one. We leverage vendor excess capacity. So if you envision simplistically fleets of waste vehicles riding around the country, they aren't operating at 100% capacity. They may be operating at 50, 60, 70, who knows? But when we bring, these are regional companies, typically, providers. And when we bring a national account locations to them, Brett's Diners to Joe's Haulers in Atlanta. Say, he's got three locations, we're doing Brett's Diners across the country. We go to Joe and call him and say, "Are you interested in servicing these three locations?" He'll say, "Yeah, I am.
I drive by them every day." You know, so in that scenario, very likely, the incremental cost to Joe's Haulers is zero, and the incremental revenue that these locations will bring is almost 100% EBITDA. Well, you can imagine how that puts us in a good position to leverage costs at that point. So what we do professionally and do very well is leverage a book of business across an entire country or portfolio geography. Lower fixed and variable costs, the ability to grow with limited need for capital. We're able, from an operating perspective... I'll give you a contrast. My competitor picks up Brett's Diners, 2,000 locations. The first thing he's got to do is go out and look to see how many more trucks do I need? How much more capacity do I need to free up?
Do I have room in my landfills and all these other fun things? We don't have to do that because that capacity exists out there already. We leverage it through our network. We're able to price, bid, execute, and implement rollout in a ridiculously short period of time compared to our competitors, and that's very beneficial. Our, we're agnostic as to the means of disposal, is a phrase that we use a lot. Here's what that means, or more importantly, why it's important. All of our competitors that own trucks and landfills and all that stuff, they have capital assets they need to feed. I'm not saying every decision they make is dishonest, that's not it at all, but the bias is always going to be toward where does my ton of trash go?
It's going in my landfill, where I make the most money, and I got to feed this capital asset. We don't have to do that. Since we don't own those, the end-market, the endgame, we don't own the trucks or the landfills or the processing plants, we're able to align 100% economically with our customer's goals. So one of the big benefits and essence of our asset-light model is 100% customer alignment, and a lot of our customers don't realize they don't have alignment with their current suppliers. So we get a chance to illustrate that for them, just like I'm doing for you today, so the differentiation, we've talked about that a lot. Our service isn't tied to company assets, owned assets. We have alignment with sustainability, flexible resources. We're fast and nimble.
We handle national accounts, we do all the zip codes, and we can scale on demand without having to go out and find a bunch of money at the bank or, or CapEx committee. I don't know which one is worse. Those are neither one fun. We're able to take on this with relatively little incremental impact. Another distinction, the big guys I was talking about, we're differentiating against them. Over half of their EBITDA comes from residential contracts, picking up trash at my house and your house, and they deal with cities and municipalities to do it. It's a messy business. I wish them well with it. We don't touch any of that. So we really only compete with these guys in a space that's well less than half of their earnings. So their focus is not on the B2B side.
They may talk about it, but that's not where their focus is. Their focus is where they're making their money, filling landfills with municipal trash and raising prices every quarter. That's the business model in a nutshell. So let's talk about data and tech. Everybody's tech-enabled, right? Well, we truly are. I'm not going to tell you we're a tech company. I'll tell you we're tech-enabled, and this is a differentiator for us. We have two buckets of tech, if you will, to use a ridiculous phrase, buckets of tech. But one of them faces. It is silly, isn't it, George? You ever heard that one, buckets of tech? So we have one part, that's customer-facing. It's really important. It's about all the data that we gather, the what do we pick up, when do we pick up, how much was it, and where did it go?
All that goes into our data warehouse. Then from that data warehouse, the customers have tools to be able to extract that and utilize that data. That's really, really key to many of them that have reporting requirements or even just desires. Also, they get a chance to see how their stores are performing. For example, if you have a food waste initiative across all your stores, and you have these huge varying volumes from one store to the next, you got to ask yourself, why? We don't know the answers as to why, but you know, we're able to point out that you do have a discrepancy there. So that data is very, very helpful on the client performance side.
The other bucket, I'll get to in a minute, but I'll just tell you about it now, because when I get to it, I'll skip it. The other bucket is really a strong one for us, and it's internal technology, which involves systems automation, which the reason that's important is the majority of our G&A, not the majority, but a large part of our G&A and everybody like us, is dedicated to simply processing the tens of thousands of invoices that come into Brett's team all the time, and all the discrepancies associated with it have to be managed. This bill is supposed to be $10, it comes in at $10.70. Now, 15 people have to touch it to get it paid. It's a nightmare, and we spend a lot of money doing that. All of my peers do as well.
We have been embarked on almost two years now of an initiative of building systems that's automating the majority of that. We should be seeing some real benefit from that going forward. That's the internal bucket of tech. Our growth platform, land and expand strategy, has worked for us quite well. We've got a mid-single digits annual growth penetration with existing clients. With many businesses, when you sign up a new client, that's as good as it gets on day one. You know, your revenue is there, that's what it is from now to the end of time. Your profit is locked in, that's what it is. With us, our GP always grows, almost always, because we're perpetually working on lowering costs through our hauler network.
And then secondly, we have so many lines of business to continue to expand into clients, that they grant us a lot of that. The sustainability trends and landfill costs are a secular tailwind. And our client base is growing, and they're really referenceable, and I appreciate that a lot. That's helpful. M&A strategy. Our three-legged stool of growth is, you know, growing with existing clients, new logos, bringing them in, which we've been really successful with this past year, and then also, you know, we're appropriate M&A. We haven't done any M&A work really for the last year and a half to two years, but we always have our pipeline going, and their profile is a fairly simple one. We're looking for companies that look like us, but smaller, that probably have outgrown their infrastructure or their ability to manage it.
Say they've got up to $40-$60 million, and they probably should have sold it at $30 million. Those are the ones that really work out well for us when we run across them. We may find none for the next 2 years, or may find 5, who knows? It's got to meet a tight criteria for us, and it's even tighter today with the cost of capital. Stable. The summary statement here is stable, scalable, with attractive industry dynamics and financial characteristics. So one, we believe we're well positioned to benefit from the structural long-term tailwinds that we just talked about. Waste services is a huge industry. It continues to grow. It's highly fragmented, which again, is a bit of a misconception.
I think a lot of people think the Big Three or the Big Four are 80% of the market. They're not even close. It's so much more fragmented than people think. Landfill prices keep increasing. I love that. I hope they keep doing that. That's wonderful. The fragmented industry, consumer awareness on ESG is important. Even if the government isn't putting their restrictions on them, consumers are having more and more demands that the people they spend money on, or those companies are economically sustained, or excuse me, that are operating sustainably. Our client relationships, I want to make sure it's clear, all of our business is contracted, all our revenue is contracted. Our client relationships are typically long term, relatively little churn, and we're a part of their business.
We're, again, being a problem solver, we have to be a part of their business. We have a diverse client base. We talked about a hundred plus waste streams. Our client service group is tremendous. We have so many, and it's wonderful, unsolicited, positive comments from these large companies about how well they're treated by our client services group, how much they depend on them. And you're probably thinking, well, every company has that, every company says that. But in our industry, it's rare. Trash industry, by and large, our DNA is as a utility. It's like calling the cable guy. They just don't answer, don't call you back, don't care. That's kinda what this industry is like. So we're able to differentiate with high-quality customer service, and I think it makes a big difference for us. Scalability.
I mentioned earlier about our efforts on automation to be able to create more and more automated, lower-cost GA in our building. It's about flow through from gross profit dollars to EBITDA, and that is accelerating dramatically. That's gonna enhance EBITDA margins, create more cash, and just all kinds of good situations to deal with. We're happy about that. This management team with over fifty years of experience, I don't like talking about that because, you know, some of us are older, but we really have. I pinch myself with the quality of the, and the experience of the management team. For a small company, I've got the resources that should be running a billion-dollar company. I hope they are in the not-too-distant future. We talked about growth strategies and our financial profile.
Our gross margins have more than doubled since 2016. Our variable costs, and we just talked about creating flexibility and leverage, and we've improved our EBITDA over $17 million and a lot more, hopefully, as we go through 2024 and 2025. So I believe that's it. Questions? Yes, sir.
Looks like your revenues were relatively flat from between 2023 and 10 months. What's happening there?
We've grown gross profit dollars, but the other revenues are relatively flat. We've signed a lot of new customers that are ramping up, and you'll be seeing much more evidence of that in Q4. As they take ninety days to ramp, there's all types of delay in tech. We had a little uncontrollable churn with some ownership changes and stuff like that, with some clients that brought their waste in-house. A lot of the growth we have was masked by some of that, you know, short-term issues there. By and large, we've committed to double-digit growth in gross profit dollars and, at a minimum. Which, I want to mention this, revenue is not an indicator that we use to manage our... It's gross profit dollars.
And the reason why is because commodity values flow through our income statement, like scrap metal, used motor oil. If they're high, our revenue looks bigger. If it's low, our revenue looks smaller, but it has nothing to do with anything. We charge fees per gallon, fees per ton. So if you want to see how this company is growing or managing, look at the GP dollars at line. And then secondly, if you want to see how we're operating internally, look at the conversion of GP dollars to EBITDA. Be a good way. That's what I would suggest. You bet. Any other questions? Yes, sir. Who's first? Go ahead.
How do you get rid of, in terms of, you know?
It all depends on the waste itself.
Do you get any pushback from the client?
No, typically. Yeah, typically, our clients come to us because it was all going to landfill in the first place, and besides cost savings, they're looking for something else, so our competitors basically take it to landfill. We probably have about half our material go to the landfill. The other half depends on the waste stream itself. Food waste, for example, organic waste, composting, animal feed, anaerobic digestion. When you're into fiber, you know, there's paper mills that we take it to there. Plastics have got their own different type of thing, too. So to answer your question, what do we do with the waste? It's whatever's appropriate or most expedient.
There are times I will tell you there's recyclable materials, but the place to get it recycled is so far from the location, it's cost prohibitive, so it'll go to the landfill if allowed. You know, so it's a waste stream and location dependent decision on that. Yes, sir. Oh, you have one there.
Yeah. How many customers do you have before that? What's the turnover like? Do you get two new ones a year, and then lose one every year?
Yeah, yeah.
Um-
Do we disclose number of customers, Brett? I'm not sure if we do.
Not specifically, but hundreds.
Hundreds? Yeah, it's not thousands or tens of thousands, it's hundreds.
Okay.
The question on the churn, basically.
Yeah.
We'll go years without losing a single thing, you know?
Wow!
Yeah, a single one. And then, and we have gone years like that. Then we have situations that seem to happen all at once, and we had. The most we've ever lost in a year is three, I think. And we've been growing our business primarily until this past year, organically, meaning organic in the sense that, existing clients we're serving, adding additional lines. That's been about 5% of our growth, maybe, on an annualized basis. And recently, we've started adding a lot more new logos, as well, new brands. So we've brought on seven this year, and I think we've lost two. You know, but that's. I would say the two is an anomaly. The seven, hopefully, will be much more repeatable.
So you're usually losing, like, one to zero, and then, two to three?
It's hard to look back and say, the one to zero, yes. The... If you take what we've done through the first half of this year and spread it over the last five, yeah, but I think we're really ramping up. Like I said, we've got seven, I think, new ones or six this year, halfway through the year, so I would anticipate some more through the balance, so I think we're much more in a add five or so significant new customer a year pace than we are one to two.
And because local governments and municipalities driving the bus on where you put a certain item-
Yeah.
Federal government is not involved?
Federal is not involved. It's never. I've been here through several administrations, and it's localities, it's counties, mostly.
Okay.
Yeah. States direct, counties execute, and it's typically around what's acceptable at landfills. Like, for example, in California, you can throw away food waste, but not if you're a business over a certain size. You know, there, there's a whole matrix of requirements, you know, that they have, and every state is different. Then there's states like, I think it's Minnesota, don't quote me, that really don't have a lot of regulation what goes on there. They got a lot of fees if you're throwing away material that, like organic waste. So, in essence, as opposed to a fine, it's a tax, you know, so it kinda got the same impact, but it's driven by municipalities and counties, mostly. Yes, sir.
The company decides they want, you know, kind of one per show. Do you think like RFP, you'll put out an RFP, and you guys and other stuff can bid on it, or how, how does it?
Yes, that it works that way, but then we also have a sales team who's working a Rolodex every day and targeting and trying to convince people that they need to transition their business, too. So, you know, I've heard people say, "We don't respond to RFPs," you know, I think that's silly because that's a customer that's telling you they want change, you know? So we do respond to RFPs, and we typically, our presentation in the RFP is what's known as an alternative presentation. So if they're looking for somebody to pick up their cheapest trash or cheapest bidder to pick up their trash at their locations, we'll bid on that, but then we add in all these, alternative aspects that we think we can provide for them as well.
In essence, it makes we have a differentiated bid instead of just A, B, and C, who's lower? You've got to differentiate. We do, we do all that. I have no problem with RFPs. I think if you ignore those, you're missing out on opportunities.
What percentage would you say you-
Oh, I-
... RFP?
I don't know. I'm sure it varies. Sometimes you get a lot of RFPs, sometimes you get none. We got a sales team that's got a pipeline they've built, a significant pipeline. Most of it's not even RFPs. It's targets, prospects, needs, that type of thing. And then the pipeline is important. It's not everybody that generates trash. It's... We have a really good idea of who an ideal customer, what it looks like, right? Those characteristics. And we know who all those customers are that use or companies are in the U.S. that exist, and that's how we drive our pipeline and focus on that. I had a question behind you there. Yes, sir?
Do the subcontractors ever sort of approach your clients, or are there any customers, I'm thinking-
Yeah
...
Well, typically, the first thing that keeps our subs from circumventing is the non-circumvention agreement they have to sign with us, or they don't get to, or they don't get to play. I mean, all kidding aside, I mean, that's, that's, that's job one. But then, as you and I both know, contracts are as good as the paper it's printed on, right? So once you get to court, you've already lost. So I don't, I don't want that to drive that relationship. The important thing is we bring value to our subcontractors, and I like to call it, we bring them asset utilization and route optimization. They've got capital invested in these trucks and assets that they have. We bring them national accounts that they can't get otherwise. So back to the Brett's Diners example, it's a national account I made up.
A local hauler or a regional guy doesn't have the ability to go to Brett's Diners and get that business because they don't know where the corporate... That's just not what they do. They're operators. So I believe that we're seen as a benefit rather than a detriment, you know, to these guys. And so, if they did try to do that to us, even if I lost in court, they'll never see another dollar from us, and that's not a move you wanna make as a local hauler, typically. It's a great question, though. Anything else?
Excellent.
Thank you, Joe. Thanks, Three Part. Appreciate it, guys.