Quest Resource's Disappointing Q4 Results: A Closer Look at Its Performance and Prospects

Quest Resource (NASDAQ:QRHC), a waste and recycling services provider, has reported its fourth-quarter (Q4) results for CY2024. While the company's revenue was flat year on year, falling short of Wall Street's estimates, its non-GAAP loss of $0.09 per share was significantly below analysts' consensus estimates. This begs the question: is now the time to buy Quest Resource?

Quest Resource's Q4 CY2024 Highlights

• Revenue: $69.97 million vs analyst estimates of $73.63 million (flat year on year, 5% miss)
• Adjusted EPS: -$0.09 vs analyst estimates of $0.03 (significant miss)
• Adjusted EBITDA: $1.68 million vs analyst estimates of $3.73 million (2.4% margin, 55.1% miss)
• Operating Margin: -10.3%, down from 0.5% in the same quarter last year
• Market Capitalization: $88.73 million

According to Perry Moss, Quest's Chief Executive Officer, "I believe strongly in Quest's value proposition and in the power of our platform. We have a tremendous roster of clients, and a highly capable organization focused on generating value for our stakeholders. Importantly, we have a robust pipeline of potential new business, and we expect to continue to deepen client relationships, add valuable services and solutions, invest in our business and people, and improve profitability."

Company Overview

Recycling corporate waste to help companies be more sustainable, Quest Resource (NASDAQ:QRHC) is a provider of waste and recycling services. Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.

Sales Growth

A company's long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Quest Resource's sales grew at an incredible 23.9% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Quest Resource Quarterly Revenue

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Quest Resource's recent history shows its demand has slowed significantly as its revenue was flat over the last two years.

Story Continues

Quest Resource Year-On-Year Revenue Growth

This quarter, Quest Resource's $69.97 million of revenue was flat year on year, falling short of Wall Street's estimates. Looking ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and suggests its newer products and services will spur better top-line performance.

Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development. Quest Resource was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for an industrials business.

Quest Resource's Performance

This result isn't too surprising given its low gross margin as a starting point. Looking at the trend in its profitability, Quest Resource's operating margin decreased by 3.2 percentage points over the last five years. This raises questions about the company's expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

Quest Resource Trailing 12-Month Operating Margin (GAAP)

In Q4, Quest Resource generated an operating profit margin of negative 10.3%, down 10.7 percentage points year on year. Since Quest Resource's operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company's historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions. Quest Resource's earnings losses deepened over the last five years as its EPS dropped 32% annually.

Quest Resource Trailing 12-Month EPS (Non-GAAP)

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. Sadly for Quest Resource, its EPS declined by 46.6% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.

Diving into the Nuances of Quest Resource's Earnings

Quest Resource's operating margin has declined by 9.2 percentage points over the last two years, while its share count has grown 4.6%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q4, Quest Resource reported EPS at negative $0.09

This print missed analysts' estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Quest Resource's full-year EPS of negative $0.04 will reach break even.

Key Takeaways from Quest Resource's Q4 Results

We struggled to find many positives in these results. Its revenue missed significantly and its EBITDA fell short of Wall Street's estimates. Overall, this was a weaker quarter. The stock remained flat at $3.85 immediately following the results.

The latest quarter from Quest Resource wasn't that good. One earnings report doesn't define a company's quality, though, so let's explore whether the stock is a buy at the current price. When making that decision, it's essential to consider its valuation, business qualities, as well as what has happened in the latest quarter.

In conclusion, Quest Resource's disappointing Q4 results raise several concerns about the company's performance and prospects. Its revenue missed estimates, its EBITDA fell short of Wall Street's expectations, and its operating margin decreased significantly. However, it is essential to consider the company's long-term growth, its value proposition, and its potential for future improvement.

Conclusion

Quest Resource's Q4 results were a disappointment, but it is too early to write off the company entirely. Its value proposition and robust pipeline of potential new business are positives that should not be ignored. However, the company must work on improving its operating efficiency and profitability to achieve long-term success. As investors, we must carefully consider Quest Resource's prospects before making any investment decisions.

Investors should continue to monitor Quest Resource's performance and make informed investment decisions based on their individual circumstances.