QRHC - NASDAQ

Good day, everyone, and welcome to the Quest Resource Holding Corp. First Quarter 2024 Earnings Call. [Operator Instructions] Please note today's call will be recorded and we will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Dave Mossberg, Investor Relations.

Thank you, David, and thank you, everyone for joining us on the call. Before we begin, I'd like to remind everyone that this call may contain predictions, estimates, and other forward-looking statements regarding future events and 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 certain significant risk 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's 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's 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 the 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 to investors' understanding and the assessment of the company's ongoing core operations 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 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 Ray Hatch, President and Chief Executive Officer.

Thank you, Dave, and thank you for joining us on today's call. We have strong momentum across our business to start the year. One area to highlight is organic growth of new clients. We previously discussed 6 new client wins last quarter and 1 large new win early in the second. To put those achievements in perspective, in the past couple of years, we've been averaging approximately 1 new client win per quarter. We also have strong momentum with our existing client base. I'll talk about this a bit later, but to summarize, we are seeing strong growth in our existing client base and continue to uncover significant opportunities to expand services even further. We're also having success adding new end markets, having added 2 in the past couple of quarters. These areas have significant growth potential, and we're well positioned to add additional new clients in these markets, as well as new service lines where there is a crossover of services within our existing client base. I will also note that our pipeline of opportunities with new and existing clients has grown and momentum appears to be durable, which bodes well for the next few years. Besides momentum seen during the first quarter, we began to see the benefits from the investments we've made and continue to make in scalability and efficiency of our technology platform and process improvements, increasing operating efficiencies. This is showing up in a number of ways. First is the accelerated pace of adding new business from both existing and new clients through our ability to quote more accurately, more completely and more timely. Second is the increased efficiency in which we are operating waste programs. We're driving costs down, which benefits our customers and our vendor partners as well as our own business in the form of lower cost of sales. And third, platform investments and process improvements are beginning to deliver operating leverage, so that we can significantly scale the business without a correlated increase in overhead costs. For example, during the first quarter, we grew EBITDA at more than twice the pace of gross profit dollars. We expect to demonstrate more and more of that operating leverage in the coming quarters. I'll now turn the call over to our CFO, Brett Johnston.

Thanks, Ray, and good afternoon, everyone. We had strong first quarter results with double-digit growth in gross profit dollars and demonstrated operating leverage with the bottom line growing at an even faster pace. Revenue was $72.7 million versus $74.1 million a year ago, which is a 2% decrease year-over-year and a 5% increase sequentially from the fourth quarter. The year-over-year decrease was primarily related to a customer that had been acquired during the third quarter of 2023. As we discussed in our previous quarterly calls, the company that acquired this client manages waste disposal internally and decided to manage our client in the same way. In addition, we had lower activity levels with a couple of accounts. On average, these accounts typically have produced lower overall margins. The year-over-year comparison was partially offset by growth from existing and new customers with more attractive gross margin profiles. I will note that we began onboarding most of the new client wins on April 1. So new client wins secured during the first quarter did not affect first quarter revenue comparisons. During the first quarter, gross profit dollars were $14 million, an increase of 11.1% versus last year. Almost all of this increase came from program optimization and expanding business with our existing clients. Looking at gross profit dollars for the second quarter and the remainder of 2024, we are encouraged by the record number of new customer wins Ray mentioned earlier. We expect sequential growth in gross profit dollars during the second quarter and anticipate that new client wins and growth with existing clients will increasingly add to our year-over-year gross profit dollar growth throughout the course of the year. Moving on to SG&A, which was $9.8 million during the fourth quarter, up approximately $400,000 from the same period last year and in line with our expectations. Looking forward, we expect lower integration costs and to gain efficiencies from the investments we made in our platform and through process improvements. We expect the savings from efficiency gains to be partially offset by continued investment in growth and other initiatives, and we expect SG&A will grow at a slower pace than gross profit dollars. As a result, we expect SG&A will be about $10 million in the second quarter. Moving on to a review of the cash flows and balance sheet. Our liquidity is in good shape, and we've increased our borrowing capacity and availability. On April 1, we announced that we had extended the maturities on our debt with Monroe until October of 2026 and extended the maturity of our credit line with PNC until April of 2026, which gives us added runway to continue our process of evaluating alternative long-term debt financing structures. That will help us lower borrowing costs and preserve the ability to maximize growth. Based on the momentum we have had to date and how we expect to finish this year, we expect to attract lenders with competitive pricing in attractive terms. We are already hearing from prospective lenders and advisers that lenders are more willing to sacrifice margin to submit more competitively priced lending options. Regarding the increase in our borrowing capacity, we also announced that we have increased the size of the borrowing line with PNC to $35 million from $25 million and added an incremental equipment term loan facility to finance up to $5 million of equipment purchases. At the end of the quarter, we had $17.5 million drawn on our $35 million operating borrowing line and nothing drawn on the $5 million term loan facility. This compares to $13.2 million drawn on our line with PNC at the beginning of the year. In this interest rate environment, we have been actively looking to reduce interest expense by optimizing cash management, carrying less cash and minimizing borrowings on the line of credit. Thus, our cash balance was $581,000 at the end of the first quarter. For the quarter, we used $1.7 million to fund operations, which included a $1 million acquisition-related earnout payment. This was the final payment of that transaction. At the end of the quarter, receivables remained elevated from our average range with DSOs at 75 days. During the quarter, we partially resolved slow payments from several of our largest customers that we described on last quarter's call. Also, I am happy with the continued progress made subsequent to the end of the quarter and expect to return to more normalized levels in the mid-60s by the end of the second quarter. I will note that the increased DSOs are temporary. We have great relationships with these customers and slower-than-expected payments is not related to collectability. Also in the future, due to the timing of onboarding new large clients, it is possible that we will see fluctuations in the DSOs from quarter-to-quarter. CapEx for the quarter was $1.9 million, which is more than we normally spend during any given quarter. $1.6 million of the CapEx was related to the comp actors that we were able to opportunistically purchase at an attractive price. Subsequent to the end of the first quarter, we have spent another $1.5 million, adding additional compactors as part of this purchase. We will opportunistically be looking for other compactors, but do not anticipate significant spending in the next quarter -- next few quarters, unless we run across another attractive opportunity. Ray will cover the rationale for this in his remarks. But in summary, it made more sense to own these compactors instead of renting them, both from a financial and strategic perspective. At the end of the quarter, we had $71.8 million in notes payable versus $67.8 million at the beginning of the year. The increase primarily relates -- reflects that growth and borrowing on our line with PNC to fund working capital and the asset purchase that I described earlier. At this time, I'll turn the call back to Ray.

Thank you, Brett. We had a strong start to the year with solid financial performance in Q1 and significant ramp in adding business from both new and existing clients. We also began to see some benefits from the investments we've made in our -- have been making in our technology platform and process improvements. I'll start off by covering new client wins. We are seeing the results of the hard work of our team over the last 2 years to develop our go-to-market sales efforts. We covered a lot of detail with the 6 new business wins during our last earnings call, so I won't go into a lot more detail covering those. However, I will tell you that we began to onboard most of these new client wins in the beginning of the second quarter and expect to see a nice step up in sequential gross profit dollar growth. I will also give you a little more color on the win we secured early in the second quarter. We refer to this new client win in a press release in late April, when we announced the date -- when we announced the date of our earnings call. This is a market leader in the grocery sector and is expected to produce 8 figures in annual revenue and offer incremental growth opportunities. We won the client in a competitive process, and we were chosen based on our reputation, cost effectiveness, customer alignment with sustainability goals and the ability for us to provide added visibility from our data portal and platform. In addition to closing several deals in recent months, we've continued to see a noticeable uptick in not only number, but also the size of opportunities in our pipeline. Given the success we are having with new client wins, we plan to accelerate our investment in organic growth initiatives, including investments in marketing and sales during 2024, reinvesting some of the profit gains generated in the business. I want to comment on the growth from existing clients. We have long said there is a great deal of opportunity with our existing client base, and that is still very much the case. We've done a good job over the last several years of adding new business with existing clients, which has been a stable source of growth for our company. However, I believe we're just beginning to scratch the surface of what we can do for our existing clients. During the last several quarters that we've demonstrated our capabilities several of our largest clients are coming to us and asking us to do more. They've been -- they have seen the value of our platform and give the corporate level not only greater visibility into their spend at the local level, but also auditable data that allows them to confirm that waste is being handled according to local, regional and national regulations as well as their own corporate level specifications. It's very rewarding that customers are coming to us and asking for solutions, and it shows how well we are regarded. As a result of this interest, we plan to take a more proactive approach to working directly with our clients. We are creating dedicated project teams to work with our larger clients to identify issues and help them understand how we can help. For example, we have been working with a large customer and uncovered more than 50 potential projects where we can help them improve waste management. There are large and small projects that range from the tens of thousands of dollars to 8 figures. And almost all of these projects have recurring waste management services once the initial projects are completed. Now I want to cover the rationale behind investing in compactors that Brett mentioned in his remarks. I don't want anyone to take away from this commentary that we are changing our business model. We very much remain primarily an asset-light business. We don't plan on owning trucks, landfills or similar hard assets. Compactors are a highly adjacent business and a very important part of the service offering in a number of sectors like retail and real estate. They offer significant complementary economics, and we're not competing with our vendor partners by owning compactors. We will look at increasing the number of contractors that we own when it makes sense. In fact, prior to this recent purchase, we already owned about 200 compactors, and we regularly buy them in lower quantities to meet customer needs. Once in place at a customer location, compactors are seldom moved, they require limited maintenance and their utilization is typically in the high 90% range. Compactors produced an attractive recurring revenue stream with attractive margin and a high return on capital. In addition to attractive financial metrics, they help us create more lasting relationships with clients. As part of this opportunistic purchase for approximately $3.1 million, we added about 200 compactors that were already under existing contracts. As Brett said, $1.6 million was paid in the first quarter and $1.5 million in the second quarter. With this transaction, we doubled the size of our fleet and gain scale that makes this a much more attractive business, all without having to add more G&A. I now reveal the estimates we're making in technology. Over the years, we've built a technology platform that will be able to scale to the size of a much larger enterprise. The technology platform has been a key deciding factor for several competitive wins and has helped us maintain enduring client relationships due to the incremental value we provide. We are actively introducing additional technology improvements in 2024. In past calls, we've discussed the vendor sourcing tool, which is helping us to accelerate our quoting and onboarding processes. More recently, we have begun rolling out an AP automation solution that utilizes artificial intelligence to further automate at the processing of vendor invoices. As of today, approximately half our invoices are being processed through our new AP automation platform, half of which required no human interaction and what we call zero touch. We provide hundreds of -- hundreds of thousands of invoices every year, and this is part of our goal to reach the 100% zero touch invoice processing. Automating invoice processing helps us ensure payments are made for services delivered and help us eliminate exceptions. Exceptions require manpower to resolve and can cause delays, which in some cases, can degrade customer service levels and vendor relationships. By automating invoice processing, along with other technology enhancements, we are lowering cost, continuously improving client and vendor value, providing major enhancements to our ability to scale, and expanding our margins. Regarding our outlook, I want to emphasize my conviction on our trajectory and the overall outlook for the company in 2024 and beyond. We have made tremendous progress during the last several years and have never been more confident in our outlook for continued double-digit growth. I feel very good about our organic growth that we have in front of us, pressure to improve sustainability, expanding regulation, increasing cost of landfills, they all continue to lower the bar for the adoption of recycling services. We have multiple sources of organic growth from expanding with our existing clients to ramping up recent wins and a growing pipeline of new business. I want to reiterate that we have a large opportunity to drive gross profit dollar growth on the cost side by optimizing the business we have in hand. As we bring revenue onto our platform, we've proven our ability to optimize cost of service through vendor relations and procurement management that drives our continued growth in gross profit dollars. In the same way, we have multiple ways of improving efficiency by utilizing the technology investments, we've made over the last several years, driving improved operating performance and expanding EBITDA margins. The work we have done is centered on building a consistent and sustainable business focused on providing valued service to our clients. The foundation is set for continued success and to build value for our shareholders. We expect our momentum to carry through this year and beyond, and I couldn't be more excited about what's to come. I look forward to keeping you updated on our progress. We'd now like the operator to provide instructions on how listeners can queue up for questions. Operator?

[Operator Instructions] And we'll take our first question from Aaron Spychalla, Craig-Hallum.

Maybe first, on the roll-out of the process improvements and technology improvements, are those largely all in place now? Just trying to get a sense of the really nice progress we've seen on new customers, but it also seems like we might be still in the early innings of really having sales focus on hunting and closing and kind of seeing that flywheel effect of just more wins leading to more volumes and helping you kind of reduce cost there and then further maybe close on that pipeline, too. So if you could just elaborate on that a little bit, that would be great.

Aaron, this is Brett. I'll take that piece. We've certainly made a lot of improvements and a lot of progress on the many different initiatives we have across the different departments in our organization. As you mentioned, I think the most impactful to date has been more on the operational side is it's allowed us to procure a little bit quicker and maybe expedite the sales process a little bit more and given us some efficiencies there. In terms of administrative, we've made some progress. But as Ray mentioned, we're only about halfway there on terms of the AP processing automation that I think is going to be one of the bigger impactful roll-outs that we do. So we're about halfway there and about the half 50% of invoices we have gone through there, we're only at about 40% to 50% optimization. We've got really good runway to about 80% near-term, the last 20% of zero touch will be a little bit harder. But you'll see that as we get through the back half of the year. So we're taking a very deliberate approach to this, making sure we're not trying to take on too much and overload the system and the groups. So a lot of work there. We did talk that SG&A will be up a little bit in Q2. So to that, Q3, Q4, we'll start seeing the impacts of that. We'll get past -- we'll get to a critical mass in the back half of the year where we're able to demonstrate much better operating leverage and you'll be able to see that numbers.

All right. And then maybe second, you talked a little bit, but just could you maybe expand a little bit on the kind of land and expand strategy with the existing clients? Maybe touch on some of the services that you're seeing there? And then any way to quantify whether dollars or kind of percentage, just kind of the potential for growth that you see from that?

I'll speak to the land. This is Ray. Thanks for the question, Aaron. The land and expand story really isn't any different than it has been, it's just continued to grow and accelerate. I think that's natural. Considering the clients we've added, we have more clients to expand with, I guess. So we've added that the clients need basically, Quest at its core, it's DNA is we're a problem-solving company, we address client pain points. And as they bring them to us, we try to develop something that will do exactly that. And that's where a lot of our new service lines come from. We don't typically greenfield by adding a service line and go out and hope that somebody will buy it. We typically add services when there's already an existing demand within our clients. And so mostly, that's been in the industrial side with some of those really kind of gritty kind of stuff like pond cleanings and stuff like that, I mean, stuff that's not traditional waste, but it's really a pain point for clients. And I think we mentioned in my remarks, one of the advantages we have for these large corporate clients is, we help them get consistent compliance and execution on a lot of these activities, because we're able to do them centrally for them and report back centrally and they make sure that they know that these -- that's why it's a pain point typically, right, because it's not being done that way. And we have the ability to do that, and it's been helpful. As far as the percentage goes, I think -- have we talked about a percentage in the past of growth on the mid single-digits. As a percentage, we anticipate at least that on a go-forward basis. It could be more. We're hopeful. But the runway looks pretty good for us Aaron on that expansion with those existing clients.

We'll take our next question from Gregg Kitt with Pinnacle Fund.

Ray and Brett, congratulations on the good quarter. Just on the 6 new wins that you announced on the Q4 earnings call that it sounds like they all are onboarded now and will start contributing in the second quarter, but didn't contribute in the first quarter. Was that right?

Gregg, this is Brett. I'll take that. Yes, most of them were -- we have one that won't be onboarded until Q3 of the Q4 wins you mentioned, yes. Or the -- sorry, you want to clarify. We talked about them being Q1 win subsequent to Q4.

Yes, and the Q4 call.

Okay. Great. And was -- is that one customer, the 8 figure customer? Or is that one of the smaller 5?

This was one of the smaller 5.

Okay. Great. And then as we think about the other customer win that you announced after the Q4 earnings call, is that customer -- can you help us understand how to think about that onboarding?

That's going to be -- is the beginning of Q3?

Mid-Q3.

Mid-Q3 on that one, Gregg. I mean it's not going to be a ramp so much. The good news is, is that it could start pretty much full bore. The bad news is it just takes a while to get it all the obligations taken care of and start generating the revenue.

Great. Maybe you can help me understand how to think about the -- some of the investments that you're making in bringing on all of these customers? You talked about some of that. But winning all these customers is one thing you've done a great job and how confident are you in your ability to get all these customers onboarded? And why are you so confident if you are -- that you're going to get everybody onboarded and provide a really good service?

Yes, I'll take that, Gregg. I will tell you, it's an excellent question. And it's one a year or so ago, I might have had a more difficult time answering to be honest. We've made some really good investments structurally in bringing down some talent that is very experienced and primarily focused on onboarding implementation of programs with existing and new clients. So we have an expansion there. And then also it coincided -- it is coinciding with an advance in some of our technology and our ability internally with our systems development. So when you combine the human capital and the technology advancement, we're in a much, much better position to be able to onboard significant clients today than we would have been a couple of years ago. So that's kind of the investment we made and the timing has been good. And it's -- at the time we're growing, it's the time we're best equipped to handle the growth. So that's kind of where we are.

My last question. Sometimes I feel like the public market can kind of be what have you done for me lately. And so you win 6 customers in Q1, and I guess what it's like 45 days later, you won one more customer, where -- are you going to win 5 more shortly. I think Q1 was an unusual amount of wins and you're onboarding all of them now. And so, we should start to see the fruit of those customer relationships starting in Q2 and then over the rest of the year. You talked about the pipeline being strong, maybe help us understand how you think about where the pipeline is today versus a year ago? I heard increase in number, but also quality and size. How do you feel about your ability to close additional new customers over the rest of the year?

All right. Thanks. I appreciate that. I feel really good about it. I'm going to address your first remarks, because it's still on target. We've talked a lot about the sales cycle in this space. We're a small company that sells to large companies. And this is typically a long sales cycle. So, if anybody is just extrapolating by the week or the day or the month or the hour on new account hires, that's probably not the way to calculate. So I appreciate that recognition. So really, what we do is, we try as fast as we can to take that pipeline and move it down the funnel. So there's an inherent lumpiness in bringing new accounts onboard. I know that you guys have been with us while I understand that. As far as the pipeline goes, it's significantly larger today than it was a year ago. And I think the quality goes 2 ways. So I said larger in size and in quality. There's 2 aspects of quality that I think are important. One is really the type of customer itself, is this the kind of customer that's aligned with our goals and our targets. And two is how aligned is -- well, it is the alignment. Two is how close are they and how valuable are they as a client themselves in size. So I guess it's -- I feel in a comparison, I think, on both sides. We've got more of them, and we think that they're very strong. And the thing about high quality clients, Gregg, is a lot of people want to -- a lot of companies want those guys. They're not out there just hoping somebody will call on them. So there's a lot of competition for those. And I feel like we're better equipped today to be able to meet those needs and win those clients than we have been in the past.

If I can sneak one more in. You were able to discuss -- disclose UNFI as a customer win. And then this most recent customer win sounds like it was a grocery if I heard you correctly. Can you help us understand, is there an immediate opportunity for Proganics with that new customer? Or is that kind of similar to UNFI that that's an opportunity over time?

There's an existing, what we would call a more traditional food waste program going on with that existing customer. So the opportunity for Proganics is to implement it in that organization and expand the existing program. So there won't really be a growth of volume or revenue by bringing in, but an improvement and enhancement of the program. What I'm saying is they're already a very, very strong company in food diversion, but they don't have the advantage of that program. We think it's going to be really helpful for them on a go-forward basis. And what was your other question relative to that? I'm sorry.

I think it was just around the opportunity for is Proganics going to turn on now and -- or is that more of a longer-term opportunity? So I think you answered it.

Yes, it's an enhancement to an existing one. I want to make sure that I was clear that with UNFI, I guess what I'm saying is, is that we're already -- we're going to start with all that business. Proganics will be an implementation that would enhance an existing food waste program for them.

We'll take our next question from Nelson Obus with Wynnefield Capital.

I'm curious, what percentage in terms of the clients you have is itemization of exactly how you recycle, so the client can use that for ESG purposes? Is that the normal part? Or is this just something you're adding as we move forward?

When you say itemization, you mean the data reporting for them, is that what you're saying?

Yes, exactly the data where they're waste wound up that they can utilize. In terms of the sustainability, is that a normal part of the contract or an add-on?

It's part of our sales pitch Nelson, to be honest with you, because we think it's a differentiator for us. And I think a lot of our prospects and clients don't even know it's available until we share it with them. So it's an enhancement, and we offer it every time because it's a differentiator. So we have a lot of usage. And as we bring on new clients, we find that the demand for it is more so every year than it was the year before.

Okay. So it's trending basically.

Yes, it's trending up, for sure, yes.

I'm a little confused in the compactor world, now that you've got what seems to be a growing number of compactors. Is this something that is a separate revenue stream? Or is it part and parcel of the contract that you signed with the individual customers?

It's a separate revenue stream, Nelson, and the contract has different terms. Typically, it's the longer-term because you're putting a capital asset on the ground to go do that. So the economics -- that's part of the economics, longevity, when these things hit a contract, the renewal rates are extremely high. They're retained typically for multiple renewals on a 5 year agreement is the traditional terms for these. So that's separate from the waste contract in and of itself.

So it seems like you're approaching 300 compactors, I mean, at what point will it be a differentiator in terms of the P&L?

Well, that's a good question. We just acquired -- it's actually closer to 400, I think, at this point. And this most recent acquisition really doesn't take, doesn't really start impacting until, well, middle of Q2, middle of Q2. So as a differentiator, you should start seeing it. And mostly, you'll see it in the back half of the year Q3 and Q4 based on when we implemented it.

No, you don't have a lot of bad debt expense, but it was up meaningfully in the quarter. I'm just -- what are your thoughts about that? And how -- I know you build people a month in advance, but the DSOs go beyond that. But are there flags that you look forward to make sure that people come across with what they owe?

Nelson, this is Brett. I'll take that one. Yes, bad debt was up, mostly related to just the fact that AR was up year-over-year. We do have a couple of things we're reserving a little bit more for, but nothing significant. Most of it is just formulaic. In terms of just DSOs in general, as we mentioned on the call or in the prepared portion, we didn't finish the quarter as strongly as we would have liked. We've done a lot early in the year. And unfortunately, it didn't quite materialize. I'm excited about where we're at already a month into Q2. But we've made some organizational changes to realign focus there. We've enhanced some reporting, increased visibility driving some more accountability there. So I'm really excited about the progress we've made. It didn't quite show up in the Q1 numbers. But I think I'm excited about what we're going to be able to produce in Q2.

Fine. Last question. In the past, you've quantified some of the SG&A savings that would flow from IT enhancement. I'm just curious, I mean SG&A is moving up a little bit, not a lot. But do you -- I mean, how much of this is capitalized and how much of it is expense as we move forward?

In terms of the IT spend?

Yes.

Yes. As we go forward, we'll have less and less capitalized. It will just be kind of ongoing maintenance. So we've talked -- we're pretty close to having a lot of this stuff fully ramped up. So those expenses will be coming down. And as you mentioned, yes, Q2, we're expecting a little bit of increased SG&A as we've got to build some additional expenses to support the growth, the new wins. But when we get into Q3 and Q4, we'll be in a better position to talk about the savings that we're expecting. We're certainly excited about that portion.

And I would assume by fiscal '25, the rate of change will be lower, if any, depending on how you grow. Is that fair?

In terms of flow through rate, absolutely our flow through rates will continue to improve, especially into next year as we've got a full year of all of these initiatives and savings.

And there are no further questions on the line at this time. I will turn the call to Ray Hatch for any closing comments.

Thank you, operator. Most importantly, thanks to all you out there and your interest in Quest and taking the time to be on the call, hear our story. I -- as always, I make a note to remind myself, I want to thank the Quest team. I know a number of you are on the call. All of these folks have continued to work diligently and help us execute in our plan to be a much better supplier to our customers. And it's just tremendous to watch them do that, and I'm greatly appreciative. The initiatives that we've been in place some of these initiatives over the course of years are starting to really show the traction. And I think we're at, I guess, the operative word is inflection point. I'm really excited at the progress we've shown now, but mostly and more importantly, it's what we have in front of us. It's tremendous the scalable leverage piece that we're building along with the ability to grow new clients, along with the ability that the team is putting together with new service lines to grow with existing clients, it's all pointing forward and the momentum is great. So I just look forward to keeping all of you up to date on the quarters to come. And again, thank you for your faith and interest in Quest.