Liquidity Services Q3 2023 Earnings Report

Welcome to the Liquidity Services Inc. 3rd Quarter of Fiscal Year 2023 Financial Results Conference Call. My name is Felicia Crabtree, and I will be your operator for today's call. Please note that this conference call is being recorded. At this time, all participants are in a listen only mode.

Later, we will conduct a question and answer session. On the call today are Bill Angert, Liquidity Services' Chairman and Chief Executive Officer and Jorge Salea is Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your questions reflect Liquidity Services Management's view as of today, August 3, 2023, and will include forward looking statements. Actual results may differ materially.

Additional information about factors that could potentially impact the financial results is included in today's press release and in filings with the SEC, including the most recent annual report on Form 10 ks. As you listen to today's call, please have the press release in front of you, which includes Liquidity Services' financial results as well as and Commentary on the Quarter. During this call, Liquidity Services Management will discuss certain non GAAP Financial Measures. In its press release and filings with the SEC, Each of which is posted on its website, you will find additional disclosures regarding these non GAAP measures, including the reconciliations of these measures with the comparable GAAP measures as available. Liquidity Services Management also uses certain supplemental operating data as a measure of certain components of operating performance, which they also believe is useful for management and investors.

This supplemental operating data includes gross merchandise volume and should not be considered as a substitute for or Superior to GAAP Results. At this time, I will turn the presentation over to Liquidity Services' Chairman and CEO, Bill Angrid.

Good morning. For the fiscal Q3, GMV set a new record of $334,000,000 and revenue grew 16% year over year with our retail segment sustaining strong volume Following its traditional fiscal 2nd quarter seasonal peak, our flexible service offerings continue to drive additional access through recurring flows of merchandise through new and expanded seller programs. In addition, our GovDeals segment's Traditional fiscal Q3 seasonal peak included record participant activity on our govdeals.com marketplace and improved availability of vehicles for sale, while low U. S. Real estate foreclosure levels and delayed initiation of real estate Government Auctions partly offset our core gov deal gains.

Our consolidated results included GAAP EPS of $0.21 non GAAP adjusted EPS of $0.28 and non GAAP adjusted EBITDA of $13,300,000 tying our highest quarter results in 9 years. Our ratios of revenue to GMV And adjusted EBITDA for the total of our segments direct profits were 24% and 56%, respectively, as indicated in our prior guidance. Our adjusted EBITDA grew faster than our total direct profit as we achieved 40% for our rule of 40% this third quarter, reflective of the potential of our business model. We generated $10,000,000 in cash flows from operations during the quarter and used $4,200,000 to repurchase 325,000 shares. We ended the quarter with $105,900,000 in Cash, cash equivalents and short term investments.

We have 0 debt and $25,000,000 of available borrowing capacity under our credit facility. Recapping and comparing segments results from this Q3 to the same quarter last year. Our retail RSCG segment was up 20% on GMV, up 20% on revenue and up 12% on segment direct profit, reflecting an increase in recurring product flows from new and expanding client programs and improving recovery rates Due to reduced availability of excess inventory in the broader market that had accumulated Forum retailer supply chain challenges last year. An increased mix of purchase model transactions drove a lower Year over year segment direct profit margin as a percent of revenue, despite improved recovery rates sequentially. Our CAG segment was up 14% on GMV, 15% on revenue and 27% on Machinio revenue was up 14% and its segment direct profit was also up 14%, reflecting Continued increase in subscriptions.

Despite the record marketplace activity for personal property across our legacy GovDeals business and GovDeals dotcom marketplace, including improved availability of vehicles. Our GovDeals segment was down 4%, reflecting a and the new prospects releasing property volumes for auction. Revenue and direct profit for the GovDeals segment As a reminder, bid for assets real estate transactions are lower take rate than traditional gov deals due to the large GMV per transaction and has the resulting effect of a lower revenue to GMV ratio yet similar direct profit margin on revenue. GAAP net income for the Q3 was $6,500,000 resulting in the diluted GAAP earnings per share of $0.21 and compared to $0.50 per share last year, which reflected the $0.35 gain from the bid for assets earn out fair value adjustment last year. Non GAAP adjusted EPS for the 3rd quarter was $0.28 up from $0.21 in the same quarter last year.

Non GAAP adjusted EBITDA of $13,300,000 this quarter was up from $11,900,000 in the same quarter last year, reflecting our growth initiatives partially offset by year over year increases in sales, marketing, technology and operations expenses to support market share expansion, diversification and marketplace enhancements. Our fiscal 4th quarter 2023 guidance range is expected to be above last year for GMV and adjusted EPS and consistent with last year for adjusted EBITDA. Our fiscal Q4 outlook for GMV follows our seasonal high fiscal third quarter for gov deals and the strong retail 3rd quarter. We currently anticipate our 4th quarter consolidated revenue as a With our segments direct profits in total as a percent of revenue in a range similar to our recent direct margin percent and slightly up over the same quarter last year. We anticipate continuing to invest in our sales and Our total year fiscal 2023 is expected to achieve a record annual GMV and the highest annual adjusted EBITDA in 9 years.

Management's guidance for the Q4 of fiscal year 2023 is as follows. We expect GMV to range from $290,000,000 to $315,000,000 GAAP net income is expected in the range of $4,000,000 to $6,500,000 with a corresponding GAAP Diluted earnings per share ranging from $0.13 to $0.20 per share. We estimate non GAAP adjusted EBITDA to range from $10,000,000 to $13,000,000 Non GAAP adjusted diluted earnings per share is estimated in the range of $0.19 to $0.27 per share. The GAAP and non GAAP EPS guidance assumes that we have 32,000,000 fully diluted weighted average shares outstanding for the Q4 of fiscal year 2023. Thank you and we will now take your questions.

Please hold for your next question. The next question comes from the line of George Sutton from Craig Hallum. George, please go ahead.

Sure. So this is an extension a lot of the investment that we've made in our all surplus aggregated marketplace to GovDeals, which has many loyal customers, George, over many years, but it was time for An upgrade both from the tech stack perspective and from the user interface perspective. There are so many automation tools and features in AllSurplus that we have great anticipation to extend to the GovDeals marketplace, Such as machine driven recommendation engines. So when a buyer comes in or prospective bidder comes in, we will begin to track clickstream. We will certainly tap into any data we have from your registration profile on everything you've viewed in the past, Everything you've bid on the past, certainly everything you've bought in the past and that will prioritize what you're seeing And to make it much more effortless for you as the user, that's one feature.

Another feature is just more User friendly search type ahead features, really this is bringing gov deals to parity with other marketplaces that we operate and that again reduces the path to purchase. In total, these changes will improve bidder participation, which we think lends to higher GMV Just through improved engagement. There are lots of other features, very clean mobile responsive design, The category, the landing pages that can be more customized, we open up opportunities to Multimedia item description information that's just easier to manage, easier to see. So ultimately, buyers can spend more time on the most relevant assets And ultimately, we unlock higher recovery rate and higher GMV for our sellers.

Sure. Well, we know that there is sort of generational focus on the semicon industry, lots of manufacturers sun setting Factories in certain markets and opening factories in other markets, we have a good legacy of client relationships there that's driving Some growth. Energy has been good to us. Mostly you're focused on supporting energy Supply chain clients and there's a lot of innovation happening, a lot of decision making about rotating portfolios from Carbon heavy to EV and other alternative energy types. So that's A market that requires access to liquidity to help them affect that transition over time.

Consumer Packaged Goods, global business, constant focus on the right products at the best So cost per unit, lots of activity around plant assets, vehicle fleet I think we had a record number actually of vehicle assets sold out of the CAG business, which is tied to CAG Clients in many cases upgrading fleets to cleaner burning fleets, natural gas fleets, I'm trying to introduce fleet mobility tracking Equipment devices and we help the clients exit legacy assets as they make those investments. And then over time, Continue to find that waterfall technology drive future GMV. So the interesting thing about CAG is we touch really every industry vertical. It's Sort of a constant cyclical marketplace. We're always catching these assets in any industry that's undergoing Transformation and change, and those are some of the highlights driving the CAD pipeline.

participants were both up 5% year over year.

You hit the nail ahead. It is a 2 sided marketplace and you need both. We have, As it relates to our marketing and sales investment, certainly lead to increasing brand awareness for our services, Bundling not only the financial value proposition, but the environmental impact, value of proposition, taking A lot of complexity off the hands of our customers aligned it to be more measurable and manageable in terms of tracking assets Throughout the upper funnel before it hits our marketplace, letting clients redeploy those assets where needed And then selling them in an orderly fashion when they're surplus to their needs. So providing things like our asset zone software to Industrial manufacturing companies around the world has been very well received. You're giving them metrics So they can report up to their Board and shareholders and how they're being a better steward of as the disposal reducing waste, reducing scrapping of equipment and material.

We also partner with our government clients to raise awareness about reducing their footprint and Being a leader in smart asset management and disposition using a digital channel, it helps remove a lot of Physical in person events, which require stores, require people to drive these in person events. We've been a leader in Helping them manage higher volume, higher value asset sales with a smaller footprint and they like that very much. So yes, those are things that help us drive thought leadership and which ultimately attract supply. Of course, we always Continue to focus on asset promotion with our buyers and innovation with marketplace enhancements, which I did talk about with GovDeals. We're doing more, I think, in social channels to engage with buyers.

Our social plus deals Channel is an interesting channel sort of crosses from digital to in person. We have tremendous Word-of-mouth, when people can find great deals in their local marketplace. We do a lot of social proof of the physical At the point of physical pickup, we interview our customers and they express the Satisfaction of finding valuable items at a great price and in an inflationary environment that's well received. And then we share that out digitally and so you get a viral bump when you talk to people and you can share that out. So We're working on both sides, but I would tell you enterprise sales is probably the majority of the increase in sales and we're Using that in all segments, CAG, Retail and Gov deals are all benefiting from You'll expand capacity in our sales efforts.

Our pleasure.