QRHC - NASDAQ

Good afternoon, ladies and gentlemen, and welcome to the Quest Resource Holding Corp. Third Quarter 2024 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, November 7, 2024. I would now like to turn the call over to David Mossberg, Investor Relations. Please go ahead.

Thank you, Andrew, 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's 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 the 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 other information are accurate, we caution that Quest does not independently verify the reliability and the sources 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 that the presentation of these non-GAAP financial measures is useful to investors' understanding and 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 that all said, I'll now turn the call over to Ray Hatch, President and Chief Executive Officer.

Thank you, Dave, and thank you all for joining us on today's call. Our financial results for the third quarter did not show the growth outcome that we had anticipated. I'm disappointed that despite the record level of new client growth and the enhancements to our technology platform, results have been muted by a temporary increase in costs and economic headwinds being experienced by clients in the industrial end market. While it's not yet apparent in the financial results, we remain incredibly excited about the future of the company. We can see the fundamentals of the business are strong, we can see the size and growth of the pipeline and the organic growth engine is hitting on all cylinders. We can see how technology implementation is progressing and beginning to demonstrate efficiency gains. But at the same time, we're frustrated that as we continue to build a scalable platform, periodic events, most of which have been more than one-off in nature, have impacted our ability to consistently demonstrate the fundamental improvements in our financial results. We are confident that our company will be better off having overcome the challenges that have come from the rapid growth and driving efficiencies through the business. And despite the disappointing results, we've continued to position our company for success in the future. The financial outlook for our company is strong. Revenue contribution from new and existing clients added year-to-date continues to ramp as expected. With revenue contribution during the third quarter from the 9 new clients added this year at just 60% of the expected fully ramped run rate, contribution from new clients should continue to be a significant source of embedded growth in the quarters to come. In addition, efficiency initiatives and operating leverage should continue to drive improvements in profitability. We've continued to work to strengthen our balance sheet, and we expect to complete the refinancing of our debt prior to the end of the year. And in doing so, we expect to benefit from a significant reduction in our overall interest rates and also in improved terms. I'll now turn the call over to our CFO, Brett Johnston, to review financials, and I'll be back to give you a review on our strategic initiatives.

Thanks, Ray, and good afternoon, everyone. Revenue was $72.8 million, a 3.3% increase year-over-year and roughly flat sequentially from the second quarter. We had strong growth from new and existing clients, which accounted for $16 million of third quarter revenue. This increase was mostly related to a record level of onboarding activity from 7 significant new client wins that have secured during the first half, as well as significant expansions with 3 existing clients that we have discussed on previous calls. The rollout of services to the new clients and expanded agreements is on track. New clients secured during 2024 generated approximately 60% of their anticipated full year revenue run rate during the third quarter. We expect these wins to provide incremental growth in both revenue and gross profit dollars as we complete the rollout and optimize services. Growth was offset by an approximate $13 million decrease in revenue due to softer-than-expected conditions at certain clients in our industrial end market and client attrition. Among those clients, volumes at a large industrial client that we referred to last quarter experienced another significant sequential decrease, more than what we had anticipated. As we said previously, the relationship with this client continues to be strong, and there are opportunities to add services with them in the long term. They are slowing production for now, which is likely to affect volumes for the near term. In addition, we had lower-than-expected volumes from another large client that we have ramped significantly during 2023 and 2024. The sequential revenue comparison was relatively flat from this client as growth from newly added service lines was offset by higher-than-expected fluctuations in project work and seasonal production changes. This client relationship is also very strong. Looking into 2025, as we get a full year of contribution from new clients already signed during 2024, we expect to realize more than $20 million in net incremental revenue from new client wins, less customer attrition. This net number does not include growth from existing clients. It also does not include anticipated future wins from new clients or revenue changes due to fluctuations in commodity prices or volumes. During the third quarter, gross profit dollars were $11.7 million, a 5.9% decrease from last year and a 13.5% decrease sequentially from the second quarter. The decrease in gross profit dollar comparisons was primarily related to 3 factors: one, a shift in revenue mix; two, higher-than-anticipated cost of services; and three, higher-than-anticipated billing credits. Regarding the mix shift, as I discussed earlier, we had less revenue than expected from more mature client relationships where the margin profile has been optimized and it was replaced by revenue from new clients and expanding engagements, where it typically takes several quarters to optimize the margin profile. Regarding higher-than-anticipated cost of sales to ensure a smooth transition to our new automated vendor management system. This temporary increase in costs mainly relates to making sure that while we are implementing our new management system, clients do not receive interruptions in their level of service. To implement the new system requires accelerate accurate data from both the client and vendors. In the initial setup, in a few cases, there are data errors received from either the client or the vendor, which can cause disruption in service. For example, vendors may incorrectly assume payment terms are 15 days as opposed to contractually agreed terms of 30 days. Discrepancy between terms sometimes causes disruption. When the vendor assumes incorrectly that they have not been paid on time, they take action, and we have to use other vendors to pick up the waste at higher rates that are not pre-negotiated to make sure the client does not experience an interruption. Part of the reason we are implementing this new system is to reduce these types of errors and potential disruption. We have made significant progress. So far in Q4, now that the system is fully operational, we are seeing a reduced error rate. This is an encouraging sign that our incremental spend on cost of sales will be less going forward. We are temporarily spending more on client services to make sure there is a smooth transition as we onboard new clients. We had a record amount of onboarding activity during this quarter. For perspective, during the quarter alone, we began onboarding more than 2,200 locations. This was more than a tenfold increase from the same period a year ago. New clients place a lot of trust in us to make sure there are no interruptions in service. Making this temporary incremental investment is well worth the while. As Ray will comment on later, we continue to receive great feedback across the board from new clients about how smooth their onboarding process has gone. In addition to the temporary mix shift and the temporary increase of cost of sales, gross profit dollars were affected by higher-than-anticipated billing credits. This increase was isolated to a small group of long-standing and related clients that had provided us with inaccurate information, which led to approximately $1 million in onetime billing credits. We have enhanced our procedures and processes to optimize -- to minimize the potential for billing credits of this size in the future. I should note that this is unrelated to the implementation of our automated vendor processing tool. Moving on to SG&A, which was $10.3 million during the third quarter, an increase of $650,000 from a year ago and an increase of $890,000 sequentially from the second quarter, but in line with our expectations. Looking forward, we expect to gain efficiencies from the investments we have made in our platform and through process improvements. We expect these savings 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 fourth quarter. Moving on to a review of cash flows and balance sheet. Our liquidity is in good shape. In the first quarter, we 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 gave us added runway to run a rigorous process to evaluate long-term debt financing, speaking with numerous potential lenders and advisers. We are nearing completion with the process and expect to complete refinancing of our debt by the end of the year, with a significant reduction in borrowing costs, incremental to the Fed reduction and with better terms that preserve the ability to maximize growth. At the end of the third quarter, we had $16.5 million of available borrowing capacity on our $35 million operating borrowing line and $2.5 million available on our $5 million equipment facility. For the third quarter, we used approximately $500,000 in cash to fund operations. We continue to make progress with shortening the cash cycle times from some of our larger clients, but we still have some room to make improvements. I will note that increased DSOs in the past few quarters are temporary. We have great relationships with these clients and slower-than-expected payment is not related to collectibility. Also, I want to reiterate that our targeted DSOs are in the mid-60s, but it is possible that we will see fluctuations in the DSOs from time to time, like we have seen this year, especially with the timing of ramping new clients. At the end of the quarter, we had $74.8 million in notes payable versus $67.8 million at the beginning of the year. The increase primarily reflects growth in borrowing on our lines with PNC to fund working capital. At this time, I'll turn the call back to Ray.

Thanks, Brett. I want to start off by thanking our team for their hard work and dedication during this past quarter and year. We were very busy with a record level of onboarding activity and the implementation of new automated vendor management program. One of the major obstacles to overcome in winning new business is related to concerns over potential disruptions and switching out vendors. Therefore, it's imperative that we onboard new clients well. I would assess the execution of our team in this area as exceptional. We've received overwhelmingly positive feedback from new clients on how smooth the onboarding transitions have gone. Strong execution is bolstering our reputation as a partner of choice and helping to remove the apprehension of switching service providers. Last quarter, I shared an example of this. Within just 7 days of going live on our platform, a new client said the implementation went so well that they volunteered to be a strong reference for us, which actually has already happened. Since our last call, we had another great example of our strong execution. A new client referred us to a new prospect. The prospect checked with another reference, which commented that they were blown away by what we were able to do in only 2 months, and they were amazed by the responsiveness of our call center in response to their service needs. I'm very proud of our team for how they care about client outcomes and how they're building a service platform that can efficiently and effectively help clients meet their waste management and recycling goals. We consistently hear positive feedback from our clients like this, and it gives me great confidence that the new clients and existing clients are well taken care of. I'll now review the investments we're making in technology. Over the years, we built a technology platform that will be able to scale to the size of a much larger enterprise. The 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. In addition to enhancing our differentiated value proposition, we also expect to gain significant efficiencies and cost savings by continuously enhancing our platform. The latest enhancement is our new automated vendor management solution that we've discussed on previous calls. Once it's fully implemented, we expect to realize $2 million to $3 million in recurring cost savings at our current run rate, some of which we've started to realize in the fourth quarter already. We believe that our technology is the first in the industry that audits 100% of vendor invoices at the line item level utilizing artificial intelligence. We believe it's the first fully digital process in our industry where every invoice charge is matched back to the client's agreement and business rules for consistency and continuity. We recently had a great example of how this platform is differentiating our value proposition and is bolstering our reputation in the marketplace. While we were onboarding a new client this past quarter, we identified a charge that prior vendors were passing through that was not part of their service. With our technology and the industry knowledge of our team, we're able to catch these erroneous charges and get them removed. The previous vendor had followed this charge -- allowed this charge to go through for years and simply did not have the technology or the people capable of uncovering it. Moving on to a discussion about growth. I feel very good about the organic growth we have in front of us. Over the past year or so, we have overhauled our organic growth machine, and it is consistently producing multiple sources of growth, including the following: the first source of growth is from existing clients. As we previously discussed, through the first half of the year, we've had 3 expanded agreements with existing clients, one of which is expected to produce more than 7 figures in annual revenue. We had another significant win with an existing client in the automotive sector recently. Due to the years of trust we've built with this client, they've asked us to help them with a rather large project. This project will produce more than 7 figures in revenue, and we're able to offer a way for the client to maximize the value of this waste stream, while at the same time, minimizing volumes sent to the landfill. Our technology platform also allows them to track and provide an auditable data record for use in their sustainability reporting. The second source of growth is new clients. As we previously discussed through the first half of the year, we secured 7 new client wins. Since our last earnings call, we've added 2 more for a total of 9 new significant wins for the year. This is more client activity than ever in our history. One of these 7-figure wins is with a client in the automotive service sector with 150 locations. It's a new client that switched from a competitor. Based on what we heard from them, the prior service provider could not live up to our standards for quality of service. And this new client has several peers of similar size, utilizing the same vendor. We are proactively reaching out to these targets and expect to win additional new ones from that peer group. Second win is with a large food distribution company. We expect this client to produce 7 figures in annual revenue and over time, should grow to an 8-figure annual revenue account. The food distribution market is a very large end market. It represents great opportunity for Quest. We're encouraged that in just a few months, we've already signed up our first 2 clients in this end market, and we have several other prospects in our pipeline at various stages of discussion. The third source of growth is coming from the ramp of the new business we have already secured this year. As we mentioned before, for the new clients we've added year-to-date, third quarter revenue was approximately 60% of the full annual run rate we anticipate once they are onboarded. We're well on our way to onboarding the clients we added in the first half of the year, and the 2 new wins I just mentioned will start onboarding in the December or January time frame. Fourth source of growth is from our prospect pipeline. We've made new investments in our sales force, added new sales leadership and added several proven sales executives to our team. In addition, we've been making investments in sales operations that allow our sales folks to spend more time on closing and less time on the more administrative functions such as proposals and lead generation. In addition, we've made an effort to shorten the sales cycle by simplifying our contracts and using our internally developed sourcing tool to turn around proposals more quickly. As a result of these efforts, we've grown, not only the number, but the size of the deals in our pipeline. As evidenced by the new client wins this year, these investments in sales are clearly helping us to shorten the cycle and to create a better yield in converting proposals into agreements. I hesitate to estimate when the deals in the pipeline may close, but I can say that several very large opportunities have progressed to the final stages of approval, and I'm confident that we'll be able to consistently add new large clients in the quarters ahead. Finally, the fifth source of growth is not related to revenue, but directly related to growth in gross profit dollars. We have a large opportunity to drive GP 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 the cost of service through vendor relations and procurement management to drive our continued growth in gross profit dollars. Regarding our outlook, I want to emphasize my conviction on our trajectory and the overall outlook for the company. We've made tremendous progress over the last several years and have never been more confident about our outlook for future profitable growth. The work we've done is centered on building a consistent and sustainable business focused on providing valued services to our clients. The foundation is set for success and to build for value of our shareholders. 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?

Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] Your first question is from Aaron Spychalla from Craig-Hallum. Please go ahead.

Yeah, good afternoon. Thanks for taking the questions. Maybe first for me on the vendor management system. Can you just kind of quantify the impact there in the quarter? And then just to confirm, it sounds like it's fully operational now. Is there any kind of carryover into the fourth quarter? And I appreciate the commentary on the reduced error rate. I mean, it sounds like it should really help your process as you onboard.

Yeah, Aaron, this is Brett. I'll take that. On quantifying, it's a little difficult to do that because it leads into some other challenges on getting to a customer level on some other breakouts. But directionally, it's less than the $1 million we called out for the credits, but certainly significant enough to mention. In terms of your second part of the question, just how that looks going into Q4, to your point, we do feel really confident on the implementation done to date. We are seeing a lot of good progress already this quarter through the first full month. We've seen significant reductions in error rates. So we do expect those costs to dwindle down. They won't be zero, but they should be less -- much less impactful going forward. Did I answer all your questions?

Yeah. No, that's helpful. And then maybe second, I mean, you kind of talked about, Ray, with the pipeline, shortening the sales cycle and then gave some details on onboarding. Can you just kind of talk about both of those, where those stand, kind of looking to improve those given kind of the technology investments just and the additions to the sales force? Like where do those stand today from a sales cycle and onboarding perspective? And where can those get to?

Yeah. That's 2 things is the -- is bringing on new clients, the sales cycle and then, of course, the onboarding process, which is post contract. I will say the onboarding -- as evidenced by 9 new signings this year, I think that's ready evidence that our sales cycle has dramatically increased or sped up, excuse me, for us to be able to bring that many on in such a short period of time. We've never done anything close to that in the past. And I credit the sales team and I credit the tools that we're using for proposals now that the operations team is able to do, significant acceleration. So I would say we've cut that sales cycle significantly back, which is great news. And on the onboarding side, again, it's really a great story that's kind of hidden by some of the results of the quarter. You measure onboarding both on the speed and the accuracy of it, but also primarily, I think, on the client feedback. As we've mentioned before, these are operationally challenging things to change out hundreds and hundreds and maybe thousands of locations and service providers and equipment. The complexity is immense. And it was a largely manual process in past years. And now utilizing the tools that we have from a technology standpoint, I firmly believe that's why we're able to get the scores, I guess, the positive scores we're getting from these new clients in the onboarding process. So I think the onboarding process is faster and considerably more accurate and the sales cycle has compressed significantly as well. So we're really encouraged on both of those fronts.

All right. And then maybe just last for me. Any current thoughts on how the election, new administration and things might impact your business moving forward? Thanks.

Yeah. It's a great question, Aaron. And we've talked about that a lot internally long before this specific election actually, as we look at changes. What we found in the area where we focus most on our sustainability is landfill diversion is where most of the impact from our activities show up. And the landfills themselves are predominantly regulated, managed, what have you, by states and municipalities, which aren't typically affected by federal elections. So overall, I think the decisions on whether it's really important for companies to maintain sustainability programs is driven more by investors in federal regulation and the demand for companies to have higher -- more quality performance. So that's a long way of saying, Aaron, that we really don't anticipate the election having any changes at a federal level. The demand and the desire to divert from landfills at the local levels is higher or higher than ever. As you know, it's difficult to permit new landfills. There's less landfills today than there were yesterday, and there'll be less tomorrow than there are today. So the emphasis on landfill diversion and sustainability, I think, is less political and more practical than it has been in years past. That's my opinion anyway.

That’s helpful. Thanks for the color. I’ll turn it over.

Your next question is from Owen Rickert from Northland Securities. Please go ahead.

Hey, guys. Can you dive a bit deeper into the land and expand sales and marketing strategy? And I know you guys did discuss the sales team, but is that optimized as of right now? Or is there still room to grow that team?

Yeah. Well, we're focused less on headcount, Owen, then I think the overall capacity and efficiency. That being said, we've added and invested in headcount, as we said. But I think a big part of it is the way we're structuring that. I mentioned SDRs, sales development reps that are doing a lot of the groundwork, if you will, on the front side to set up appointments and more of the admin stuff, which really creates significant capacity in your senior level sales team. So right there, you're able to add capacity or capability without even adding heads. But we have added several quality experienced people to our team along with the sales leadership that we've done this past year. So yes, there's still room to expand. You find the right salespeople with the right experience and they represent you, we're always happy to look at those opportunities, and we'll continue. The land and expand strategy really hasn't changed. It's just -- it's doing well. One of the things, we've always anticipated getting in on 1 line or 2 and then grabbing more existing spend from the rest of them, we always have done a good job. I think our history is, we've been able to generate mid-single-digit growth with existing clients, almost purely through the expansion program we're talking about. But that also seems to have improved lately with some of the technology advances we've had. When you have clients, large national clients come on board and they announce a large expansion with you within 2 months of a launch, that's amazing. And it really adds a lot of credibility, I think, to the strategy and my hats off to the team that have positioned us where we can't have that kind of expansion with these clients.

Got it. Got it. And then just secondly for me, how would you characterize the new business pipeline today?

That's actually a real bright spot, Owen. I'm glad you asked. The strength of our new pipeline is, it was beyond what I was hoping for a year ago. I think I mentioned in the call, we obviously have the new signings we talked about, but we have several really key targets that have moved toward the bottom of the funnel that we anticipate some good things happening in the relatively short term. But speaking with Perry, one of the things he's always focused on, Perry, our sales leadership, Perry Moss, is what is that Level 2, what does that middle of the pipeline look like to make sure that it's strong enough to continue to feed the bottom. And it's really reached a level of magnitude that we're all happy with as far as where it is in the funnel, what that funnel looks like. So the simple answer to your question is, I know I say this a lot, but it's beyond where I thought it would be at this point and continuing to get stronger.

Great. Thanks Ray, thanks, Brett.

Thanks, Owen.

The next question is from Gregg Kitt from Pinnacle Family. Please go ahead.

Hi, Ray and Brett. Thank you for taking my questions. So we've had a couple quarters like this over the five and half years we've been invested and you've figured out how to get to the other side of it every time thus far. And so, this is a disappointing quarter, but it sounds like you have quantified the issues, some outside of your control that should reverse some opportunities to get better. Maybe just to touch on the 3 areas that you highlighted for the reason for gross profit impact this quarter. The first was just a mix from some of your larger industrial customers. It sounds like -- just to be clear that there's not necessarily loss of service lines, but that's more a function of an economic slowdown with those customers, but you also believe these to be Fortune 500 customers that if economic growth continues or reaccelerates at some point in those end markets that you would be well positioned to service those customers. Is that fair?

That's a very good description, Gregg. I think it's so important to draw a distinction between market share loss and volume fluctuations, right? We haven't lost any lines. Our relationship is as strong as ever with these clients in that sector. We ride the tide with them sometimes, right? We take credit for the growth when they get generated and we take a hit when that happens. But no, these are Fortune 500 strong companies. They're not going anywhere. They're going through some, I would consider temporary volume restrictions that impact us. But our service levels have remained high and our relationships remain strong. So that's just a timing factor. So I think your assessment is very accurate.

Thank you. And could any of these customers, President-elect Trump has talked about wanting to deemphasize nearshoring to focus on onshoring, which is probably good for you because you don't have operations in Mexico to the best of my knowledge. Is that -- is there any potential benefit if companies choose to bring some production onshore rather than nearshoring within your customer base?

Yeah, I would go even further and say, in general, onshoring is going to be beneficial, whether it's this client or all of the clients. So no, you're accurate. We don't have operations in Mexico or overseas. So any time there's production that's moved outside of our trade area, it's not a positive. So if there's more onshoring our business grows within the 48 or within the U.S., that's going to be beneficial for us.

Thank you. So then on the second issue on higher costs, I think Aaron asked a little bit about this, how to think about what that cost is. I think what I want to make sure I understand is that, it sounds like when you onboard new customers, you just need to make sure that, that service is essentially as seamless as that transition is as seamless as possible. And so, is -- are the costs that you saw in Q3 something that you expect to continue to see as you onboard new customers? I guess, I'm first focused on the new customers. That's probably something that you continue to see. Is that fair?

Gregg, I'll answer that one. I think it's more -- some of the challenge in Q3 is that, we were bringing on a new system, at the same time, we were doing record onboarding. So there was kind of a perfect storm in the quarter as we were learning the new system and working out the kinks and optimizing it. So we had that. That required some additional costs and then you had onboarding on top of that. So you really stressed a couple of areas there at one time. So I wouldn't think of that as kind of an ongoing cost in the future. I think it was more limited to just the uniqueness of what we were all trying to do in the quarter.

Okay. Great. And I think you sized that at less than $1 million, but material enough to call out.

Yes, I certainly wanted to call it out. It was a drag on the quarter. And again, to your point, we wanted to highlight that it was more temporary in nature as we get into the quarter. We have a lot of faith in the platform we built and the scalability. So we wouldn't expect to see big drive -- big usage of cost as we bring new clients on.

Okay. Great. Thank you. And then I think the third bucket was on billing credits. This one was a little bit confusing to me. And so, it sounds like some customers identified some issues in which they were being billed, it sounds like from vendors. Those are being passed on to the clients, but was it your responsibility to kick out those charges that were inappropriate? Is that what the relationship was?

No, let me try to clarify a little bit. It's hard to get into a lot of detail on this without spending a ton of time on it. But they're unique in nature. This is an isolated customer group that's in a specific end market for us, and it's a unique billing structure in that. We're doing tenant billing but relying on third-party information and relying on the accuracy of that information. We got that information as to who to bill and how much to bill. And with this model, it can have a pretty significant impact. All of that -- all of those credits go straight to the bottom line. So I was -- we reviewed this -- when we went through this process initially, we did do some extra diligence to verify the accuracy of what we got, but it just wasn't quite robust enough. We put in some extra filters to help validate some extra processes and controls around this, largely think we have it contained going forward, but it was a larger issue in Q3 for us and it was kind of the result of a bigger initiative to do some overall vendor cleanup -- I mean, tenant billing cleanup.

Okay. And so, if the customer is giving you the information on who to bill and you got bad information from the customer, right?

That's correct.

Yes, bad or incomplete.

Yes, it wasn't all bad. A chunk of it obviously was.

Okay. And so, some amount of misinformation or lack of information from your customer. And then I just want to try to understand where does the billing credit come back to, hey, this came out of your pocket based on a customer error. That's -- I guess, that's the piece that I'm confused about.

Well, you got -- the customer is really the landlord and the one we're billing is the tenant. So the information -- so now you're into the -- that's why it's a little confusing, the definition of customer, right? So the billing was -- it's a tenant bill situation. You bill tenants based on the information you get from your customer, which is the landlord, the management company. That information was not accurate. So since we billed it inaccurately, we had to reverse it as well, which is where the credit came from. Does that make a little more sense? And one of the things, Gregg, Brett was pointing out, I think it's important to understand is, the impact in this situation is significant because there's no reversing cost of goods with it. It's pure revenue, which has no associated COGS. So it's pure gross profit dollars. You see what I'm saying?

Yes.

Okay.

And so, does -- in this case, where the landlord gave you bad information, essentially, you have no recourse to the landlord to say, "Hey, you gave us this bad information, so we charged people inaccurately". Help me understand what, if anything, you can do to go back to the landlord and say, look at what you cost.

There's nothing we can do, Gregg. It's unfortunate, but we don't really have a request.

Okay. Okay. Yeah, a disappointing quarter. But -- so if I understand correctly, the billing credits, that should not recur again in the fourth quarter. So if we're looking at gross profit this quarter, we should see a $1 million reversal in the fourth quarter because that shouldn't happen again, if I understood correctly? And then on the vendor management system, there's some sequential improvement from this quarter from -- it sounds like that doesn't recur in the fourth quarter. Are those statements both right?

I think those are directionally correct. Yeah.

Yeah, they should not be recurring to address your point.

Okay. Okay. If I can sneak 2 more in unless there's somebody else in the queue, I'll hop out and come back.

Go ahead, Gregg.

Okay. Great. On the refi, is there some way to think about -- you talked about significant reduction in interest rates and that getting done by the end of the year. So that's good news. Is there some way to think about what that reduction could be? Or would you rather wait until that's done and announced?

Yeah. Trust me, we really challenged ourselves with giving a little bit more detail. But I think just without anything being complete, it wouldn't be appropriate for us to comment. But we certainly are excited about getting a deal done and being able to talk about the improvements in the new structure.

It shouldn't be long -- yes, it shouldn't be long, Gregg, before we're able to give you that detail. And I echo what Brett said, our excitement comes through the fact that we added in and we wanted to see more, but you know how it goes. But anyway, suffice it to say, we really feel good about where we are in that, and we'll get you more information as available.

Okay. Great. Thank you. And on DSOs, this year has just been a unique year in part because of customer ramps. Is there -- and Brett, I've heard you say there's no reason that you can't get back to the mid-60s again. And I would love to see it. That would be great. I'm sure you would love to see it, too. And so, in a -- is there some reason that you look at it and you say in your communications with customers, there's just some shift where you say, you know what, maybe DSOs are 5 days longer than they've historically been?

No, I still expect to get back to the mid-60s, again, backing out ramping new -- hopefully, we expect new customers continuously ramping. So maybe you get kind of a normal piece of that going forward or more normalized. But we saw some improvement this quarter. It got muted by ramping new customers, which is great. We'll take that offset. But we did see some improvement there. I'm still hopeful we've got some good progress. As we've talked about in the past, Q4 is always a little challenging or can be because we've got large customers that are trying to manage cash flow as well. We typically have good conversations and can still get all of our collections in, but you just never know what's motivating them when it comes down to the end of the year. But overall, we're still happy. We have good relationships. We have reined in some that got a little extended and excited to see as we get into next year, making some improvement there again.

I think if I could just end it for me with one more open-ended question. I think your stock is down 10%, 15% after the close today. And I think that this quarter doesn't reflect what you think the business can do. I would just -- and I think some of your prepared remarks accomplished this, but give it back to you to kind of help us understand as investors, why you think some of these issues are resolved? Why you think this isn't going to happen going forward or will happen on a lesser degree? There will obviously be issues over the next several years. And hopefully, you continue to deal with them and get to the other side. But why should people want to own the stock now? And help us -- help investors that are looking at this see that vision?

Yeah, Gregg. That's a big question. So I'm trying to break it down into pieces. First of all, the impact items we talked about, they fall really in 2 buckets, controllables and non-controllables. I can't tell you what's going to happen with a couple of our key -- with some of our customers in the industrial market that have faced some challenges. I can tell you that, I believe, strong companies, strong products, and they'll come back. And I think that our results reflect that. That was a lot of our impact this quarter. Then there's the bucket of controllables, which I think Brett did a pretty good job of explaining the one-off nature of those things. The credits were unfortunate, but they were there. It's an error that had to be corrected. And the onboarding costs that we've associated with bringing on new clients and a lot of extra expenditure associated with making sure the service levels were pristine. I think that timed out with putting our new systems in at the same time, which you only introduce new systems once typically. So there's a significant amount of non-recurring elements to that. I think what I would want to tell you as investors is, we know what happened this quarter definitively, and we have action plans against all the controllables associated with that. And as a matter of fact, most of them are already in place. We're talking about Q3 results now, and we're in early November. So, a lot of that corrective action has taken place. So, I would stress, Gregg, from an investor standpoint that you guys have been with us a long time. We've gone through some challenges, and we've moved forward a lot. We're stronger today than we were, and we have stronger people that know how to address and improve these issues, and it's being done. We feel like we're in a great marketplace. I will tell you, just -- I was making a lot of notes during a lot of these conversations. So I just want to say that this is an important takeaway. We know what went wrong, and we have plans to address them to the extent that we can, and they're being taken place now. So my confidence level is really high on the nonrecurring elements of that. But I don't want anybody to lose sight of the fact that we've added 9 new key customers this year. We haven't even come close to that. It's not the same hemisphere where we've been in the past, and we've been onboarding them at an almost 100% success rate. Those formulas bode very, very well for what tomorrow looks like here. We've got a market that's very accepting of what we're bringing to the table that's evidenced by these new customers. And we've got new customers coming on that are excited about the superior service levels we're able to bring them. So our retention should be quite high and our ability to drive incremental profit should be quite high. So with that, I understand the disappointment. I'm going to go ahead and go straight to closing, I guess, if that's all right, since I'm kind of doing that right. I want to emphasize a few things. I never want to forget this. I'm going to jump here and say I want to thank everybody. The people here at Quest have been busting their tails. We mentioned earlier, the activity level has been very high. And frankly, the demands have been very high, and they've been meeting those. So I'm grateful for those folks and thank all of you for those efforts. The initiatives that we have in place are working well. Simply put, it's to increase efficiencies, drive the automation program, increase efficiencies, lever our G&A, which is taking place as we speak. And it's -- I can't tell you the zero touch initiative has been a game changer for us in the last few weeks, and it's accelerating. We're seeing the results right now. And also, the fact of the matter is, we're bringing on high-quality customers. The pipeline is stronger than ever. It's not just talk. We've seen the signings, and we've seen the rollout. So, I think the market is receptive for what we're doing is being proven. I think that we've improved dramatically what we're doing internally with our new systems impact. We've had some growing pains, and we've had some customers that have faced some challenges. The composite is what you saw last quarter. But on a go-forward basis, our optimism, as you can tell, is quite high. So, to Gregg, I hope that answers your question. To the rest of the investors, we're greatly appreciative of your confidence in us, sticking with us. We're committed to giving you the kind of results that you're expecting. And with that, we're going to end the call. Thank you, everybody.