Quest Resources (QRHC) Q1 2026: SG&A Slashed 26% as Share of Wallet Expansions Offset Industrial Drag
Quest Resources delivered sequential improvement in Q1 2026, as disciplined cost control and wallet share gains in non-industrial sectors helped counter ongoing industrial softness. The company’s operational initiatives and new customer wins are now flowing through to results, setting the stage for margin leverage as macro headwinds ease. With customer retention stabilizing and a robust pipeline in place, Quest’s diversification strategy is positioning it for improved cash flow and organic growth as the year progresses.
Summary
- Cost Structure Reset: SG&A cut by 26%, enabling margin stabilization despite industrial volume headwinds.
- Non-Industrial Diversification: Share of wallet expansions and new QSR wins are driving incremental growth and resilience.
- Pipeline Visibility: Robust new business and wallet share pipelines support organic growth outlook as macro improves.
Business Overview
Quest Resources (QRHC) is a national provider of outsourced waste and recycling services, operating an asset-light model that connects commercial and industrial clients with a network of third-party vendors. The company earns revenue by managing waste streams and delivering cost optimization for clients across verticals including industrial, retail, hospitality, restaurants, and healthcare. Major segments include industrial manufacturing, quick service restaurants (QSR), retail, and other non-industrial end markets.
Performance Analysis
Quest’s first quarter results reflect a business in transition, balancing persistent industrial weakness with the fruits of diversification and operational discipline. Revenue declined year-over-year, primarily due to lower volumes from select industrial clients and the absence of $3 million from a divested mall-related business. However, sequential revenue improved 5% from Q4 2025, marking a return to seasonal growth trends and highlighting the impact of recent client wins and wallet share expansions.
Gross profit dollars fell nearly 12% year-over-year but rose 6% sequentially, with gross margin at 15.7%. SG&A expenses were a standout, dropping by $3 million (26%) year-over-year, reflecting ongoing efficiency initiatives. Operating cash flow turned slightly positive despite lower revenue, driven by improved billing, collections, and vendor payment processes. Customer retention rates have normalized after isolated attrition in 2024 and early 2025, and new business contributions are now fully reflected in results as onboarding costs have rolled off.
- Industrial Volume Headwinds: Lower waste volumes from select ag-sector industrial clients drove the bulk of the revenue and margin declines.
- Non-Industrial Growth: New client wins and share of wallet expansions, especially in QSR and retail, delivered $2 million in incremental growth, offsetting some industrial softness.
- Cash Cycle Improvement: Days sales outstanding (DSOs) trended down, and working capital days improved by 11, supporting positive operating cash flow.
The business exited Q1 with improving monthly trends and a stronger foundation for operating leverage as macro conditions stabilize.
Executive Commentary
"Our operational excellence initiatives are delivering improved performance across the business... We're controlling cost very well and taking proactive measures to give ourselves incremental financial flexibility as macroeconomic conditions improve."
Perry Moss, Chief Executive Officer
"SG&A has decreased by $3 million, a 26% reduction year over year... Our financial strategy remains focused on managing our cost structure, leveraging our operational excellence initiatives to drive cash flow, and paying down debt."
Brett, Chief Financial Officer
Strategic Positioning
1. Industrial Weakness Mitigated by Diversification
Industrial segment softness remains the primary drag, driven by lower production volumes among a handful of ag-focused customers. However, Quest’s accelerated push into non-industrial verticals—restaurants, retail, grocery, and healthcare—has helped cushion the blow and reduce reliance on cyclical manufacturing volumes.
2. Share of Wallet and Land-and-Expand Execution
Quest’s land-and-expand strategy—growing wallet share with existing clients—has gained traction, with several dozen expansions over the past year and five or six large-scale opportunities in active discussions. These initiatives are less susceptible to macro delays, leveraging established relationships for incremental growth and margin expansion.
3. Operational Excellence and Cost Discipline
Operational initiatives, including exception management, billing optimization, and vendor payment process improvements, have driven both cost reduction and productivity. SG&A reductions and cash cycle improvements provide a buffer against margin pressure and support incremental investment in growth.
4. Technology as a Differentiator
Quest’s technology platform, which automates vendor invoice exception identification and rectification, underpins its value proposition of cost avoidance and improved service. Automated, no-touch capabilities are enhancing customer and vendor experience while supporting margin improvement.
5. Financial Flexibility Through Refinancing
The refinancing of the company’s asset-based lending (ABL) facility and term debt covenant relief provide ample liquidity and flexibility for continued debt paydown and operational investment, even in a challenging environment.
Key Considerations
This quarter marks a turning point where Quest’s operational reset and diversification efforts are starting to show tangible results, even as the core industrial environment remains subdued. The company’s ability to generate positive cash flow and maintain normalized customer retention rates points to a more resilient business model going forward.
Key Considerations:
- SG&A Reset: Deep cost cuts have structurally lowered the expense base, setting up for operating leverage as volumes rebound.
- Onboarding Costs Rolling Off: Recent new client wins are now full contributors, with one-time onboarding costs behind, improving gross profit conversion.
- Pipeline Health: Both new business and wallet share pipelines are robust, with the latter representing about half the size of the new business pipeline, supporting organic growth.
- Debt Reduction Focus: Early repayments on high-interest term debt are lowering interest expense and freeing up cash for further deleveraging.
Risks
Persistent industrial weakness, especially in ag manufacturing, continues to weigh on volumes and margins, with recovery timing uncertain. Elevated fuel prices and geopolitical volatility could pressure vendor costs and customer decisions, though Quest’s contracts allow for pass-throughs. Macro-driven delays in customer decision-making may slow the pace of new business wins and expansions. The company’s ability to maintain cost discipline and cash cycle improvements will be key to navigating ongoing volatility.
Forward Outlook
For Q2 2026, Quest guided to:
- Sequential growth in gross profit dollars as new QSR and wallet share wins ramp.
- Continued margin pressure from industrial mix, partially offset by operational improvements and service optimization.
For full-year 2026, management maintained a focus on:
- Driving organic growth through new client wins and wallet share expansions.
- Margin improvement via operational excellence and cost control.
- Improved cash generation and further debt reduction.
Management highlighted several factors that shape the outlook:
- Share of wallet opportunities are expected to be a key lever for near-term growth.
- New business pipeline remains active but subject to macro-driven delays in customer decision-making.
Takeaways
Quest’s Q1 2026 results underscore a business that is managing through end-market headwinds by leaning into operational discipline, customer retention, and targeted growth in resilient segments.
- Margin Resilience: Cost actions and onboarding completion are mitigating industrial drag, positioning Quest for operating leverage as conditions normalize.
- Strategic Diversification: Non-industrial growth and wallet share expansion are proving effective in stabilizing and incrementally growing the business.
- Monitor Pipeline Conversion: The pace at which Quest converts its robust pipeline into revenue will be a key determinant of acceleration in the coming quarters.
Conclusion
Quest Resources’ disciplined execution and diversification are beginning to pay off, with sequential improvement and positive cash flow despite industrial headwinds. As cost actions take hold and new business ramps, the company is positioned for margin expansion and organic growth when macro conditions improve.
Industry Read-Through
Quest’s experience this quarter offers a microcosm of broader waste management and outsourced services sector dynamics. Asset-light providers are benefiting from customers’ focus on cost reduction and flexibility, especially in non-industrial verticals. The ongoing industrial softness, particularly in ag-adjacent manufacturing, highlights a lagging recovery relative to broader macro indicators. Operational discipline, technology enablement, and wallet share expansion strategies are increasingly critical for margin defense and growth. Competitors with exposure to cyclical industrial volumes will face similar challenges, while those able to diversify and drive internal efficiencies are best positioned for resilient performance as the cycle turns.