Quest Resource (NASDAQ:QRHC) reported higher third-quarter adjusted earnings despite a modest decline in industrial revenue, as margin improvements and growth in non-industrial markets offset softer volumes.
Revenue rose approximately 1% from a year earlier to $63.8 million in the third quarter of 2026 and was essentially flat sequentially. Adjusted EBITDA increased to $3.4 million from $2.9 million a year earlier and $2.8 million in the second quarter.
CEO Perry Moss said the results reflected progress in building a more diversified business. Industrial revenue softened modestly from the second quarter, while the non-industrial portfolio grew across markets including food service, retail and hospitality.
Margins improve as industrial volumes soften
CFO Brett Johnston said approximately $1.7 million of net new business from customer wins and expansions with existing customers helped lift revenue year over year. That was partly offset by an approximately $1.2 million decline from certain industrial clients.
Quest had expected sequential revenue growth for the quarter, Johnston said, but the improvement in industrial volumes seen from the first quarter to the second did not continue into the third.
Gross profit was $11.4 million, essentially flat from a year earlier but up approximately 10% sequentially. Gross margin rose to 17.8% from 16.3% in the second quarter, though it remained below the 18.1% reported a year earlier.
Management attributed the sequential improvement to factors including service-network optimization, pricing discipline and maturing margins on recently onboarded accounts. Moss said several industrial customers also contributed to the gains, even as pressure from select industrial clients weighed on the year-over-year comparison.
Johnston said the company was confident that margins could continue within a range, while noting that a meaningful return of industrial volumes could weigh on the overall margin mix.
New business pipeline and investment plans
Moss said Quest renewed contracts with four customers during the quarter without making concessions. The company added smaller amounts of business with existing customers, although it did not close any significant expansions of that kind in the period, he said.
Several discussions with large national brands are at an advanced stage, including opportunities in non-industrial markets where Quest does not currently operate, Moss said. He described some as “right on the goal line” but declined to predict when they might convert, saying he hoped the company could make announcements next quarter.
Quest plans to invest in sales and technology after focusing on cost reductions and building a more efficient operating foundation. Moss said the company had removed some underperforming sales resources and intentionally did not replace them, but now believes it can take on new business. The company also recently hired Vignesh Lal as senior vice president of technology.
Selling, general and administrative expenses fell 8% year over year to $8.5 million, helped by lower bad debt expense and facility rent, as well as cost savings across departments. Johnston said SG&A would likely rise slightly next year as Quest reinvests in growth, though the company expects additional efficiencies and new business wins to offset much of the increase.
Cash collections and fourth-quarter outlook
Quest reported a GAAP net loss of $0.5 million, narrower than the $1.3 million loss a year earlier. It ended the quarter with approximately $1 million in cash and $17.4 million of availability on its asset-based lending facility.
The company used $0.3 million in operating cash during the quarter. For the year to date, it generated $4.4 million in operating cash flow and reduced higher-interest term debt by approximately the same amount, Johnston said.
Days sales outstanding ended the quarter at roughly 71, essentially flat sequentially. Johnston said three short-term collection issues, including a payment-processing change at one large client, had been resolved. Without those issues, he said, Quest most likely would have reached its near-term target in the mid-60s.
For the fourth quarter, Johnston expects gross profit and gross margin to rise solidly from a year earlier. He cautioned, however, that seasonal effects would cause revenue and gross profit to decline sequentially. Moss said the seasonality is most pronounced in the industrial business and that growth in non-industrial markets could help counterbalance it.
About Quest Resource (NASDAQ:QRHC)
Quest Resource Holding Corp. (NASDAQ: QRHC) provides waste and recycling management services for commercial, industrial, and multi-location customers. The company helps organizations manage material collection, transportation, processing, recycling, reuse, and disposal through a network of third-party service providers.
Quest’s offerings are designed to help customers improve waste diversion, reduce landfill use, enhance operational efficiency, and support sustainability and regulatory objectives.
