Rob Fink - Hayden IR Brian Dick - President CEO Laurie Latham - SVP and CFO.

William Bremer - Maxim Group Marco Rodriguez - Stonegate Capital Partners Howard Davner - Terrapin Advisors.

Good day everyone and welcome to the Quest Resource Holding Corporation First Quarter 2015 Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the call over to Rob Fink, Hayden IR. Please go ahead..

Thank you, Operator. I would like to welcome everyone to Quest’s first quarter 2015 earnings call. Hosting the call today are Brian Dick, President and Chief Executive Officer, and Laurie Latham, Senior Vice President and Chief Financial Officer.

Before I turn the call over to management, I'd like to remind everyone that this conference call may contain predictions, estimates, and other forward-looking statements regarding future events or the future performance of Quest.

Use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions is intended to identify those forward-looking statements.

Forward-looking statements also include statements regarding Quest’s future opportunities for growth and capturing market share; Quest’s expectations for revenue, margins, and profitability in future periods; Quest’s industry position and industry trends; and future opportunities related to monetizing Quest’s data.

Such forward-looking statements represent Quest’s current judgment about the future, and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause Quest’s actual results to be materially different are described in Quest’s securities filings, including its Forms 10-K, 10-Q, and 8-K.

You can find those documents on Quest’s Web site at www.qrhc.com. Quest does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand, and the competitive nature of Quest’s industries.

In addition, this call will include a substantial amount of 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 and other governmental publications, 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 has not independently verified the reliability of the sources or the accuracy of the information.

In addition, Quest’s observations and views about industry conditions and developments are its own and may not be supported by or agreed with by other industry participants and observers. 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 assessment of the Company's ongoing core operations and prospects for the future.

Unless it’s 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 the earnings release. And with that, I'd now like to turn the call over to Brian Dick. Brian, the call is yours..

Thank you, Rob. Good morning and welcome to Quest’s 2015 first quarter earnings call and webcast. Thank you all for joining us today.

Demand from large national corporations for more efficient and economical ways to dispose of waste, reduce their ecological footprint, and meet regulatory requirements continues to drive interest in our business, positioning us to achieve our goal of 500 million in annual revenue in the next two to four years.

Overall, we have made substantiel progress during the quarter, and our pipeline remains active, in particular for the second half of 2015. New client growth will further reduce our client concentration risk and add business to our portfolio and establish a basis for continued margin improvement over time.

At the same time, the number of client locations, a key operating metric and leading indicator of our future results, rose from over 20,000 unique locations at the end 2014 to over 32,000 at the end of the first quarter. Scale is of critical importance to Quest.

Our ability to negotiate prices, creating a more profitable spread and lowering our service costs, is based on a number of unique locations we serve.

These accomplishments, and others we achieved during the quarter, are not fully reflected in our first quarter revenues, as declining commodity prices in the secondary market partially offset the revenue growth we achieved from new customers and new locations during the quarter.

Our estimated impact of declining used oil market and used cooking oil commodity related pricing to our first quarter revenue of 2015 was approximately 18% when compared to the first quarter of 2014, partially offsetting the growth we achieved in the first quarter.

Excluding our estimated impact of commodity prices, our growth and revenue run rates for the first quarter would be in line with the organic growth we experienced in 2015. We entered 2015 well aware of the commodity headwinds, and as we discussed on our Q4 call, secondary market pricing for some of the commodities we monetize did declined.

While pricing fluctuations impacted our first quarter 2015 revenues, the effect to our overall profit margin was limited because we purchased and properly sell commodities and do not hold these commodities inventory.

Therefore, we have less price risk than our competitors and believe we are well positioned to capture market share from those competitors that can no longer service clients in a cost effective manner or do not have the flexibility to value used oil from a regional or spot market perspective.

Going forward, if commodity prices rebound to more normalized and historical levels, the increase in volume from new client locations will positively impact our commodity related business. In parallel to our new customer efforts, we are also focused on expanding existing client relationships to drive our organic growth.

Many of our clients come to us initially for assistance with carrying out a single program or to address a specific challenge. As we continue to build these relationships with our clients and they see the value we add, we have additional opportunities to expand those relationships and grow our business organically.

Similar to the expansion, we experienced with Walmart, whereby we have grown our relationship from one program to five, we have a track record of expanding relationships with our other clients. Our success in maximizing efficiency for clients and reducing their ecological footprint is evidenced by their positive financial and operational results.

Significant opportunities remain for us to cross-sell and further penetrate our existing client base. This is another reason new locations, such as the 12,000 new locations that we added in Q1, are so valuable to us.

To capitalize on our growing prospects, we strategically added a couple of experienced sales people with specific industry experience to our team in the first half of 2014. As a result of those hires, we began to strengthen our pipeline in the second half of 2014 and are now beginning to see the impact of those efforts come to fruition.

Going forward for the remainder of the year, we expect to onboard more new customers as prospects mature as part of the typical sales cycle timeline. To further accelerate growth initiatives, we are also exploring potential strategic and accretive acquisitions as an effective way to allocate capital and maximize shareholder value.

We are prudently evaluating synergistic opportunities that will not only add EBITDAS and revenues to our business but also allow us to leverage our scalable platform and expand existing client relationships to grow our business by adding more service offerings to customers that we acquire.

As we continue to grow our business on the service side, we believe there could be opportunities to monetize the data we collect that we collect through our national footprint. While it is still too early to know how and when we will be able to capitalize on our data, we are optimistic that those opportunities will exist.

We continue to develop the platform to access and analyze our data, which increases the value of that data to our business and the overall market. Before I turn the call over to Laurie for a detailed review of our financial results, I’d like to again reaffirm my confidence in our business and our team.

Quest is well positioned to continue our growth as we aim to reach $500 million in annual sales and expand margins in the upcoming years. With that, I’d now like to turn the call over to Laurie for a more detailed review of the financial results. Laurie please go ahead..

Thank you, Brian and good morning to everyone on the call. Revenue for the first quarter reached $40 million compared with $38.2 million for the first quarter of 2014, an increase of 4.8%, driven primarily by organic growth in recycling and waste service fees.

As Brian mentioned earlier, this organic growth was partially offset in Q1 by a decline in commodity related revenue. The gross margin percentage for the quarter was 8.2% compared with 8.7% for the first quarter last year and 7.6% for the fourth quarter of 2014.

Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-related non-cash charges, or “EBITDAS,” was a negative $206,000 for the first quarter of 2015, which was an improvement of $206,000 over the fourth quarter of 2014, although lower than EBITDAS of $502,000 for the first quarter of 2014.

The decline was primarily driven by reduced commodity revenue, change in the mix of our services delivered, and the increased costs of servicing of a larger number of customer locations.

As a reminder, we compute EBITDAS, which is a non-GAAP financial measure, as reflected in today’s press release reconciliation table, to provide an additional insight into our financial performance.

The loss per basic and diluted share was $0.01 for the first quarter of 2015 compared with a loss per basic and diluted share of $0.02 for the first quarter of 2014. Turning to the balance sheet.

As of March 31, 2015, we had $3.3 million in cash and cash equivalents as compared as compared to $3.2 million as of December 31, 2014 and $1.1 million as of March 31, 2014.

Working capital as of March 31, 2015 was $733,000 compared to $1.3 million as of December 31, 2014 and was a $6.7 million improvement from the working capital deficit of $5.3 million as of March 31, 2014.

Total long term liabilities as of March 31, 2015 were $44,000 compared with $45,000 as of December 31, 2014 and were a significant reduction from the $17.8 million outstanding as of March 31, 2014.

We had $4.8million in available borrowing capacity under our credit facility as of March 31, 2015 and recently extended that facility until March 13, 2018. Turning now to our outlook.

As Brian indicated earlier, we are focused on our growth from both client acquisition and expanded services basis, which we expect to translate into increasing run rate revenue in the upcoming year, along with further enhancement when commodity prices show improvement. That concludes our prepared remarks for now.

And we’d now like to open the call up for questions..

Thank you [Operator Instructions]. And we will take our first question today from William Bremer with Maxim Group. Please go ahead..

When I look at the gross margin and hearing how you articulated in terms of underlying commodities and you had a little bit of effect.

Would you say that effect was 20 basis points or 50 basis points on this? Can you just give a little more granular on that if commodity prices were at the levels they were say a year ago at this time, where would the gross margins sort of popped out at?.

Well, the overall impact of commodities on our revenues we stated there was about 18% compared to the previous year, so that was a reflection of the commodity market changes from the year-over-year standpoint. So, from that standpoint, the 18% number was the reflection. I mean the overall impact to our gross margin percentage is relative to that.

So I’d say as we see the improvement there related to lower commodity revenues, we still have 80% plus of our revenue that didn’t change the gross margin percentage didn’t change due to the commodity change..

And I see the relationship with Walmart and the percentage that it contributed this quarter.

Could you possibly name the next say five of your customers and what their percentage contribution was for the quarter?.

Yes at this time, we’re not ready to provide that information. You’re correct in the Walmart side of it.

We’re very excited to say that as we ended 2014, we were at 53% as we reported a Walmart now this quarter our indications are that we’re below 50% and that includes with obviously continued store growth and the side of business that still grows within Walmart but just definitely illustrates the fact that we’re continuing to grow outside of that account..

Given your SG&A expense this quarter, can you give us a sense of how that’s going to progress throughout this year going forward? And you’ve built a incredible platform here.

Can you give us a sense of what the overall capacity of that platform is at this point given the current expenses that we see? How large can you grow the top-line with the current platform that you have built out here Brian?.

Well I’d say there is a lot of factors that go into that. As we continue to grow the business, it really depends on which business line is added first. As we continue to get in the specialty services, one of the things that was pointed out was the increase in SG&A expense.

And as we have stated throughout the process to the public is that when we get new business we have to staff before. And as you can see, nearly doubling or more than doubling our locations year-over-year here we’ve had to add additional staff to get ready for that growth.

So, again as we said in our call, that revenue we have not fully realized some of that revenue in this first quarter but we’ve had the staff up for it in advance and that’s going to cause the SG&A to rise. So, as we continue to have large wins, which we expect to do and we are continuing to focus on we’re going to see that continue to increase.

However, like I’ve said in the past, our top level expenses in our SG&A will stay flat. We have our executive team, we have our management team in place, we obviously have all of our Company infrastructure and for public infrastructure in place. So those large expense lines won’t change.

We see increases obviously in our customer service staff as well as our accounting staff as we grow but our base line and our platform of our key members will not change..

Okay, and I am going to throw a curve ball at you now in terms of one of your product lines, and that’s your recycling of food products of course the nation now. In the Midwest right now the bird flu and the calling of that in the farms is at monumental levels.

And I was just curious how that may affect your business? I am sure that there are significant opportunities there for you.

Would you be able to participate in that?.

Not specifically. Usually in those cases where you have a mass recall there is a situation where they are working directly with the farmers themselves.

So customers are having direct relationships with that where we can see some opportunity in recalls would be a product base where if it’s in packaging and at a retail location, that could increase the volumes that are coming into our programs, but typically those types of recall scenarios or outbreaks like that are taking care over the manufacturing level or in this case the farming level, so we really don’t have an expected impact on that..

Okay. We store at other lights of our mill and Tyson making statements just curious if you had some exposure there? Thank you..

No exposure or opportunity..

[Operator Instructions] And will now take a question from Marco Rodriguez from Stonegate Capital Partners. Please go ahead..

Most of them have been answered, but a couple of quick follow-ups.

Just as what is the clarification on the commodity revenue impact you mentioned the 18% was that an 18% decline year-over-year that you saw in the commodity revenue?.

Yes, Correct. So, from the 2014 first quarter to the 2015 first quarter it's the 18% reduction in commodity revenues..

And did you also I'm not sure if I recall that you said that your total revenue and expense in the commodity side is 20% of your current revenues in the quarter?.

No. We didn't particularly say that Marco, I think let me clarify that 18%. So, if you look at our total revenue quarter-over-quarter compared the two years. Our revenue would have been approximately 18% higher if we were -- we estimated if we were still at the same level of pricing for our commodities as in Q1 2014.

Does that help clarify that for you?.

And do you have a percent as far as, what your revenues are made up that are closer to commodities market?.

Well. It still has stayed in that 20% or less range Marco..

And then last question in your Q, you talked about refinancing your line of credit and there was some Burbage that talks about modifying, I guess some of the term for permitted acquisitions.

Can you talk a little bit more about that?.

Yes. When we set up our line of credit depending on as we have potentially some smaller type acquisitions or needed some availability of the cash to close an acquisition, we negotiate with Regions Bank to allow us to utilize parts of the line of credit for those types of transactions.

So, they of course wanted to make sure that just wasn't completely open to unlimited, but they did wanted to make sure with the clear that we have that availability and that's why it is mentioned that's part of our facility..

[Operator Instructions] And will go back to William Bremer with Maxim Group. Please go ahead..

I guess I'm back. Okay. In the Q I noticed a under the warrants, we had about 1.2 million were forfeited.

Can you just sort of give us an idea from a third-party I mean that's always positive just curious what you have heard there?.

Those warrants have been issued to a service provider based on a performance based contract and we decided to change direction with that particular service provider and therefore those warrants were forfeited..

Looking at your let's go to Earth911.

Can you give us the contribution to the quarter? And how that's been developing since beginning of the year?.

Yes. Earth911 business is something that as well all knows is still a work in progress for us it's something that we officially launched the platform at the beginning of the quarter.

We are seeing continued momentum in the number of visitors coming, the number of people that are interest in the marketplace, that are interest in the content and everything else that goes into that, so we’re confident that the platform is now there.

The marketing efforts for that has been more of the grassroots efforts obviously lot of social media, so from that standpoint we’re just getting started, so at this point in time not a lot to report beyond, we are seeing increased traffic, we are still excited about the platform and believe that from a functionality standpoint we’re at the place where it can really it can move forward for now..

And looking at your CapEx little bit higher than I anticipated, is that still the run rate going forward on CapEx and this is purely towards, I guess software for the Earth911 Web site correct?.

No. There may be some portion of that, but the majority of that is related to building our data platform for the core business..

Brian is Earth911 still at a breakeven at this point or is it possibly doing a little better?.

Yes. I think generally speaking it's still at the same point as a breakeven it’s just not something that’s a significant cash drain for the Company..

And now looking out for the next subsequent couple of quarters, can you give us an idea of how the revenue was going to be generated and sort of are you looking for year-over-year improvements throughout the rest of the year?.

Well, I think overall for the business as we continue to say that the commodity markets and the impact that they have obviously will have an impact on our total revenues for the year.

The important piece to this is that we are continuing to gain business and this challenged commodity market actually has presented us a lot of opportunities over this last quarter especially that we expect to close additional business because of.

So we feel that we’re really positioned very well for when the commodities do come back, which we believe will come back because history will say, these levels are not where typically they’re going to be. So when they do, we think we will positioned really well to rebound especially from a revenue standpoint.

So we’re using this challenged time in the marketplace to grab market share, feedstock, and we’re still able to see the same gross profit dollars, which is important and something about our model that I have always tried to emphasize that we are not hedging these commodities, we’re not inventorying these commodities.

And therefore it gives us this opportunity as we illustrated in this quarter to maintain gross profit dollars as our revenues follow..

Thank you for the granularity on the commodities because it pretty much impacted your quarter by a little bit over 7 million if my math is correct, just want to confirm that.

But exing out commodities, do you feel as though you still have the same type of growth for the second quarter as you did this first quarter or do you feel as though things are getting a little bit more -- a little stronger and throughout the rest of the year.

How are you looking at your revenue recognition?.

Well, we don’t really always provide that detailed level of guidance. But generally speaking, you can see that we did announce our large client wins in the 1st of March which we’ve indicated in these releases that obviously we’ve not recognized in our revenue at this point fully.

So, you can make the general assumption there that we have not had a material loss of business and continue to grow from that announcement as well as others..

And we will now take a question from Howard Davner with Terrapin Advisors. Please go ahead..

Brian you mentioned exploring potential acquisition, can you talk a little bit a bit more about what type of opportunities you’re looking at and also give your current valuation how you might think about using your stock in a potential transaction?.

Sure. Yes, we definitely feel that acquisitions could be a good pathway for us to break into potentially new service lines. There are other companies out there that have asset like model that maybe more focused in other industries that may range from scrap metal recycling to trash and other types of commodities, recycling as well.

And so we’re looking to those types of companies that again kind of have the same life model of ours with the asset like feature but may have an opportunity for us to expand our existing services into.

So, they may have a client that they only do serve one service for in the grocery industry whereas we know we can do five, six or seven different services for that same client given it’s an opportunity to expand it. So certainly focused on that we feel the opportunity is there.

Obviously if it is a commodities-based business there is going to be some pressures there, that gives us a buying opportunity. There is going to be obviously opportunity in the market with people wanting to look for exit. So we’re aggressively in there in searching at this point in time we don’t have anything to report officially.

But it’s something that’s at the top of our to-do-list. As far as financing those and each one is specific. Each individual owner is going to have a different subset of wants; there is going to be some that are owned privately.

There is going to be some that could be owned by private equity team; there could be some that are potentially even public; so each one of those structures is going to be different; obviously, focused on the value of our stock. We think that there is an opportunity there for them to kind of take the ride with us.

And so our first focus is to say we’d love for them to be shareholders with us and join us in this journey but at some occasions it’s going to take cash as well because they maybe in a private situation that they need a strategy so it’s basically a combination of both but definitely specific to the type of owner that we would find..

And that will conclude our conference for today. I’d like to thank everyone for your participation and have a great afternoon..