Rob Fink - Hayden IR Brian Dick - President and Chief Executive Officer Laurie Latham - Senior Vice President and Chief Financial Officer.

Gerry Sweeney - Roth Capital William Bremer - Maxim Group Marco Rodriguez - Stonegate Capital.

Good day and welcome to the Quest Resource Holding Corp Second Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I'd like to turn the conference over to Rob Fink of Hayden IR. Please go ahead, sir..

Thank you, Operator. I would like to welcome everyone to Quest’s second 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 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.

Forward-looking statements also include statements regarding Quest’s future opportunities for growth, Quest’s expectations for revenue, margins, and profitability in future periods; Quest’s industry position and industry trend; and future opportunities related to Quest’s e-commerce Web site and comprehensive proposals director.

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, in this call we 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, 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 has not independently verified the reliability of the sources or the accuracy of the information.

In addition, Quest’s observations and view about industry conditions and developments are its own and may not be supported or agreed with by other industry participants or 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 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'd now like to introduce Brian Dick. Brian, the call is yours..

Thanks, Rob. Good morning and welcome to Quest’s 2015 second quarter earnings call and webcast. Thank you all for joining us today. During the second quarter we continued to advance our long-term growth strategy by adding new customers and expand the number of client locations we serve.

Pricing in the secondary market for some commodities that we monetize overshadowed the revenue growth that we achieved. We estimate the revenue impact of declining used motor oil and used cooking oil commodity related to pricing was approximately 20% when compared to second quarter of 2014.

Excluding its estimated impact to commodity pricing our revenue growth for the second quarter of 2015 would be in line with the organic growth expectations that we experienced in 2014.

Going forward we believe the increase in volume from new clients in the automotive aftermarket will positively impact our commodity related business when secondary market prices rebound to normalized and historic levels.

Overall, market demands for environmentally responsible and cost-effective recycling solutions continues to grow and based on the inquiries that Quest is receiving we are seeing in our growth today. As a result our pipeline today is larger than it was at this time last year.

In addition we've already begun meaningful pilots program that represent opportunities for many coupled sources of incremental revenue growth.

The waste industry is been dominated by large waste management companies that control a significant share of the overall market, the majority of these companies have invested heavily to build a national infrastructure around trucks and landfills which they own relying heavily on the hauling and storage of waste to monetize their business.

Not surprisingly diverting waste away from landfills and providing customers with more responsible and cost effective ways to reduce and reuse their waste is counter to their traditional business model and their related investments. At Quest we have approached the industry in a different and disruptive way.

We focused on a broader view to create the right solution based openness to ideas and adjust the goals of our client. We provide a variety of programs and an extensive knowledge of industry.

Our knowledge extends to the nuances of the regional markets, the variety of players, the choices of processes to accommodate each of those client's businesses, but in particular we capture volumes of data and invest in our IT infrastructure to create and leverage a platform that contains a large amount of data.

To be more proactively involved in those decisions and help them manage their client programs. Utilizing this platform we connect and effectively manage a national network of service providers independent haulers, specialty recyclers that collect transport and process the variety of waste stream.

We're able to provide scale to our network and can quickly establish our services at competitive price while maintaining flexibility to add or change services as our client needs evolve. We provide insight to our customers waste and recycling programs through comprehensive reporting and analytics.

During the second quarter our new client growth continued and the number of locations we service, which is a key operating metric and a leading indicator of our future results, rose by nearly 20%. Currently in more than 38,000 locations we have nearly doubled our location footprint since the end of 2014.

As I discussed on previous calls among this base of service locations we have opportunities to expand our existing client relationship. Many of our clients come to us initially with a single need to address or a specific challenge.

As we build those relationships with our client and they experience the overall value we had we’re able to expand our services and grow our business organically. Our blue-chip customer base includes the world’s largest retailer, many of the top grocery store chain and the majority of the 10 largest automotive dealership groups in the country.

Our contract are typically multiyear and we’re proud of our current retention rate of more than 90% Wal-Mart remains still our largest client although we continue to broaden our customer base and reduce our client concentration risk.

With the addition of business across the country, across a wider range of customers a basis is established for overall margin improvement going forward. We continue to anticipate changes in the regulatory environment at a federal and state level which will continue to be a growth driver for our business.

Specifically we believe more stringent regulations in the management of food waste and hazardous materials would further accelerate interest in our specialty service line.

Our progress to collect and properly manage regulatory materials food and automotive waste to help our customers comply with governmental requirements and minimize their environmental impact. But in many cases our programs can also save our customers money.

Another example many of our grocery customers had historically disposed of organic bakery and deli items that out last the shelf life in landfill. This represented in some cases almost one third of their total waste and carried the cost for disposal.

Through our program this waste can now be collected, processed and turn into compost, animal feed additives or other materials that reduce the overall landfill waste. For our customers that these programs that add extra value why for Quest for we have programs that set us apart from others in the industry.

In addition to the legislative development we’re also monitoring emerging market opportunities for new service lines. One area of particular interest is the potential to recycle, recalled automotive parts.

We are speaking to multiple, current and potential customers about providing solutions that can used to recycle or reuse recalled automotive parts which is of course the natural expansion to our automotive active parts service that we already provide.

Our national network of service providers and flexibility puts us in a unique position to work with automotive OEMs and dealers to support national recall and establish a process to recycle components that may otherwise be disposed of.

With that I’d like to now turn the call over Laurie Latham for a more detailed review of the second quarter financial results. Laurie, please go ahead..

Thank you, Brian. Revenue for the second quarter reached 42.3 million which was roughly flat compared to 42.5 million in the second quarter of 2014 and up 6% sequentially from the first quarter of 2015. As Brian mentioned earlier our organic growth was partially offset in Q2 by decline in commodity related revenue.

This gross margin percentage for the quarter was 8.1% compared with 8.3% for the second quarter last year and 8.2% for the first quarter of 2015.

Earnings before interest, taxes, depreciation, amortization and stock related non-cash charges or EBITDA was a negative 149,000 for the second quarter of 2015, an improvement over the first quarter of 2015 although lower than the EBITDA of 435,000 for the second quarter of 2014.

The decline was primarily driven by reduced commodity revenue a change in the mix of our services and the increased cost of servicing a larger number of customer locations. As a reminder we compute EBITDA which is a non-GAAP financial measure to provide additional insight into our financial performance.

Calculation of this measure is included in a reconciliation table in today’s press release. The net loss per basic and diluted share was a $0.01 for the second quarter of 2015 compare with the net loss per basic and diluted share of $0.02 for the second quarter of 2014.

Revenue for the first six months of 2015 was 82.3 million up 2.1% from 80.7 million in the same period last year. The gross margin percentage for the six months ended June 30, 2015 was 8.1% compared to 8.5% for the same period last year.

EBITDA was negative 355,000 for the first half of 2015 which was lower than the EBITDA of 936,000 for the same period last year. The net loss per basic and diluted share was $0.03 for the first six months of 2015, equivalent to the same period last year.

Now turning to the balance sheet for just a minute, as of June 30, 2015 we had 542,000 in cash and cash equivalents, this compared to 3.2 million as of December 31, 2014. And the same amount as of March 31, 2015. Working capital as of June 30, 2015 was 7.5 million compared to 1.3 million as of December 31, 2014.

It was a 10.9 million improvement from the working capital deficit of 3.4 million as of June 30, 2014. This improvement was primarily due to the extension of our loan agreement maturity date to May, 2018 and the reclassification of the loan as a long-term liability.

Total debt as of June 30, 2015 was 7.3 million, a modest increase compared with the 5.3 million as of December 31, 2014 and a significant reduction from 18.3 million outstanding as of June 30, 2014. As of June 30, 2015 we have 2.8 million in available borrowing capacity under our credit facility of 10 million.

On July 7, 2015, we exercised the accordion feature in the loan agreement to add an additional 5 million in borrowing capacity with total facility of 15 million going forward. I will now turn the call back to Brian..

The fundamentals of our business remain strong and are supported by our positive industry trends and our expectations for increasing demand in our services. We are actively engaged with our current customers to identify programs and solutions that'll improve their business and potentially expand our wallet share.

The interest we are attracting from new customers is also equally encouraging. Looking ahead to the second half of 2015, we expect to add more new customers as identified opportunities mature through the sales cycle. I'd like to reaffirm my confidence in the business and our team.

Quest is well positioned to continue our growth as we aim towards the $500 million annual revenue and expand our demands and margins in the upcoming years. That concludes the prepared remarks. We'd now like to open the call up for questions.

Operator?.

Thank you. [Operator Instructions] We'll go first to Gerry Sweeney of Roth Capital..

Obviously [indiscernible] to the oil prices and I just wanted to be clear is that I think -- commodity prices were solid at a 20% impact on year-over-year basis, so does that imply 20% of that I think about 42 million in revenue last year so, it was detrimental by about 8 million on an apples to apples basis, is that the way to look at it?.

Yes, that's exactly right..

And Brian, how -- obviously market will -- has taken another downturn over the last several weeks, -- how is that shaping up in I guess the UMO market, you also have the cooking oil market.

At some point does that market get at a level of just sort of stabilizes the long slowdown, I know there's a little bit of battle going in the UMO market for companies line charge regardless of price and adding a value but this curious as to how we look at that especially if we sort of enter a period of maybe longer term oil pressure?.

We certainly haven't seen these types of levels for many years and in the marketplace that I think that no one really knows where it can go and I think we're certainly in that same boat, not be able to have a crystal ball to understand the marketplace but it is a situation where as we expect in first quarter with oil prices in the $50 in the mid $50 ranges and now of course potentially being in the $40 ranges, it will have an adjusted impact on the price of used motor oil as well as some residual effects from the cooking oil commodity as well, so again we can't provide that kind of crystal ball knowledge but certainly it's something that if we continue to see oil on the $40 per barrel range we believe that revenue decrease will continue to see that in paying of the customer for the used motor oil will continue to decrease, at what level it becomes a charge or a free service I don't think we know that at this point in time..

And then, very much and sometimes break up as a percentage of revenue, would we be able to do that in the quarter or is it not changed all that much?.

We are in general, we are below the 50% level with them and we maintain that, continues to drop each quarter so I think that's the guidance we can give you on the half that is, it's continuing to be a smaller piece of the overall revenue..

Okay. That’s fine. I understand.

And then talking about margin still in a little bit but I guess budget for margin expansion I think driven by some, it will save organic improved line, I mean what can we look at going forward for the rest of the year I know you don’t have carry anything for you on the oil side, but price will be higher I think it help kind of even on margin, but how do we look at margin expansion was organic versus maybe some other headwind in the near term..

Well, I think there is a couple of different things obviously as we’ve talked about and disclosed in other presentations the margin levels are different on each one of our service line.

So depending on the customer mix of new business obviously that affect our margin, but correctly stated the commodity downturn that probably had the most material effect on those margins and so all though it’s not a situation where we are stuck with inventory or we’re upside down in scenarios where commodities can certainly get asset heavy company into is has had an impact on our business..

But going forward too we are adding additional customers and as we add those customers we are further refilling that bucket and so as we continue that process we think things will, reach more of the stable basis and we can start to see some return to some improvement..

Got it. .

The iteration point Laurie I think that has a good point to reiterate it even with this 20% commodity effect on our revenue company has able to virtually in essence maintain which means growth from these other service, the industries that we charge for our services you can obviously make that assumption that we're growing the business in those non-commodity services..

Okay. That’s sort of what I was getting at but obviously there is a little bit of headwind in oil but everything else that's on your plate how does that sort of place those headwind to that maybe --? I’ll jump back in queue I appreciate it..

We’ll move next to William Bremer at Maxim Group..

Good morning Brian, good morning Laurie. .

Good morning..

If you could provide the contributions from Wal-Mart for the quarter?.

We don’t breakout the contribution by customers to our revenue. But what we were talking about was the overall percentage of revenue is now below the 50% level in our business. .

Okay. In the first few conference calls you have but okay, not a problem.

And then on maybe touch upon Earth911 and what’s the strategy there and again I’d love to know the contribution or the impact that had had in this quarter since you’ve done a lot of tweaking, lot of investments and where is it now?.

Sure. From the Earth911 standpoint as we’ve said we continue to make adjustments and in fact we made pretty significant changes in the customer experience from the shopping cart standpoint. We’ve made changes in the search engine optimization and some really nice advancements over this last actually two quarters.

The business in Earth911 continues to see additional website traffic. We continue to see positive feedback from our reader’s longer time on a website et cetera. But at this point in time the revenue associated from the shopping experience is just on the level of material to the company..

Okay. And then just looking at the back half of ‘15 do you anticipate the back half of ‘15 be comparable to the back half of ‘14 or with this commodity headwind be even less than year-over-year still little what we had here in the second quarter which was down fraction of the business..

Bill, as we move towards the end of 2014 and compare to 2015 the price has started to drop really at the very end of 2014.

So we will continue to see that effect as the commodity price dropping certainly through the third quarter and to a lesser degree into the fourth quarter, but that dropping angle started near the end of last year sort of work displaced our Q1 so if that gives you some insight, that’s how we see the effect year-over-year..

So in essence you believe that the fourth quarter could be your greatest revenue generating quarter for the year based upon how you are viewing the market at this point?.

Well, I think that’s a slightly different question to what you just asked but we do think that as we’re growing and getting additional business to help fill that commodity downturn that that should be the trend towards the fourth quarter.

But if you’re looking at it year-over-year, just think was the question previously we think there still be some effect of the commodity versus what we're reporting will have less of a delta due to the commodity pricing..

You can make some assumptions there, the fact that as we've announced our location growth continued to grow in the second quarter, we've had some nice press releases and those are opportunities for revenue that we -- we're not fully seen in our second quarter but obviously for third and fourth quarter those locations will produce the full amount of revenue so it's a fake assumption that those location additions will effect positively, the revenue growth in third and fourth quarter..

Yes, Brian, let's stay there for a second, I mean you had a very nice announcement of June 10th.

I believe it was approximately 81 locations, very dominant customer on -- maybe one quarter lag in terms of really starting to scale that type of revenue which -- tell me if I'm right or wrong I think it's anywhere from 3 million to 4 million per year, so just want to make sure -- that volume which we really shouldn't see any type of personnel increase, SG&A should pretty much hold, maybe can you comment on the SG&A level given the fact that you have both the very material customer, resourcing some leverage here in the model?.

Yes, we believe so, that's certainly an account that we're very skilled in, we have all of our knowledge base and experience -- has a very strong place on the automotive side of it so, we're not forecasting a need for a significant amount of additional SG&A, and we always learn and as you guys know we talked about before in a lot of cases even before announcement like what happened on June 10th, we've already, we need to scale up, we've already scaled up for the situation so it is a very safe and functional state of that we can assume clients like that virtually with very little SG&A costs..

[Operator Instructions] We'll move next to Marco Rodriguez at Stonegate Capital..

I was wondering if you could talk a little bit more back about the commodity, oil exposure you guys have, can you kind off give us a sense as far as your overall revenue exposure, you have there to that -- that segment if you will or range?.

I think we've talked about it that traditionally before it was even as high as 30%, but we are seeing commodity revenues more in the 15% maybe even a little less than that now, because of the revenue just dropped relative to the prior year.

Is that what you're looking for there, Marco?.

Yes, that's helpful.

And then in terms of the client exposures, your largest client, do we have a significant amount of exposure on the commodity side or is that obviously all with your auto clients?.

Well, particularly and obviously Wal-Mart plays -- is our largest client and they have a very diverse line of businesses that we do with them, so they do have their auto care centers that do generate used motor oil so that is of course affected in a scenario, but we also do tires -- scrap tires services for them, we also do our food waste recovery services which again it's not directly affected by the commodity changes, on the other side of the coin we do use cooking oil services for them as well which does has the commodity impact so they are a kind of a mixture of both service cost and commodity revenue as a client..

When I take a look at Wal-Mart and their exposure on the commodity side, I mean can you talk maybe a little bit about the volumes you've seen with them and pricing levels this quarter and maybe if you can kind of contrast that with last year at this time and also sequentially?.

We certainly can't get into that little bit of detail. We have confidentiality and a lot of different factors that go into -- to speak specifically about a customer.

In general, as Quest as a business we have certainly seen the increase in our overall used motor oil gallons as well as our other products as well, so that's more attributable to the overall growth of our business lines, but specifically to Wal-Mart we're not able to say..

Got you and understand and then kind of coming circling back on Earth911, with what you've seen thus far are you kind of where you had expected are you're behind schedule, can you provide any kind of color there?.

I think that we're as far as it’s a website itself we're very happy with the progress, if anyone has not been there yet, there has been some changes and tweets that we've gotten very positive feedback from so from the overall website itself and the experience that we're providing, we're very happy with that, as far as the -- I mean on the other side of that again, it's not the point where it's a material item for us to discuss on the overall sale, we're coming into season, shopping season, we think we're pleased and ready to -- be ready to take advantage of that but this point in time, we just don't have that future knowledge of what that really means….

And can you provide Brian any sort of update on the acquisition front just kind of what are you seeing in terms of opportunities and valuations?.

Well, as everyone knows we are very focused on acquisition opportunities.

There are certainly deals out there, there are certainly things that we think it would be a possibility, but really nothing to report at this point in time as far as movements or something that we need to disclose at this point, but I can tell you from a board level standpoint as well as obviously our senior team here we are focusing on opportunities and have many different forces in the industry so to speak that are listening and looking for opportunities for ourselves.

We are excited about that piece I think it’s something that is certainly a focus for the last half of this year. But at this time we’re just not far enough along to give you any more color than that..

Got you. And last quick question I’ll jump back in the queue.

Looking at the balance sheet receivables from the day standpoint have been kind of kicking up here as of late, any kind of color you can provide there in terms of that movement and then also expectations for the second half of the year?.

The receivables as we grow they do tend to increase and sometimes we will have a blip up when we add a large client and as we’re getting them oriented into our cycle.

So I think that we’ve noticed that we are also looking at making sure in particular some of those clients that were newer understand their payment terms and we’ve worked with them to make sure we have that cycle optimized for them. So, sometime it goes pop up a little bit when we bought a large client on then settles back..

So you’re expecting that’s come back down at the 50 day rang rather than the mid-60s..

Yes..

Got it. Thanks a lot guys. Appreciated..

Thank you..

This does conclude today’s question-and-answer session and today’s conference. Thank you for your participation..