Liquidity Services, Inc.

Welcome to the Liquidity Services, Inc. Third Quarter Fiscal Year 2021 Financial Results Conference Call. My name is James, and I'll 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 Angrick, Liquidity Services Chairman and Chief Executive Officer, and Jorge Salea, its 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 views as of today, August 5th, 2021, 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-K. 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 metrics 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 reconciliations of these measures with comparable GAAP measures. Liquidity Services Management will also use certain supplemental operating data as a measure of certain components of operating performance which they also believe is useful for management and investors. The supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I'll turn the presentation over to Liquidity Services CEO, Bill Angrich.

Good morning and welcome to our Q3 earnings call. I'll review our Q3 performance and provide an update on key strategic initiatives. Next Jorge Celaya will provide more details on the quarter. We're grateful for our team's efforts to safely deliver outstanding results for our customers during the quarter. Our pioneering e-commerce marketplace solutions continue to power the $100 billion plus circular economy and our triple bottom line which benefits businesses, communities, and the environment. We achieved this through our safe and effective resale and redeployment of surplus assets, our reduction of waste, and by creating markets for items that would otherwise be landfilled. During the quarter, we enabled a growing number of large enterprises, small businesses, and government entities across the world to realize meaningful financial benefits and advance their sustainability programs. Our Q3 results reflect continued strong growth across each of our segments fueled by our scalable marketplace platform, software, and expert services. As we continue to expand the volume and breadth of assets transacted on our marketplace platform, we are attracting more buyers collecting more data to drive higher recovery value for sellers, and in turn, attracting more sellers. This technology-enabled liquidity services flywheel effect is a very attractive feature of our two-sided marketplace business model and is responsible for generating $61.5 million of operating cash flow and $40.5 million of adjusted EBITDA over the last 12 months through Q3. GMB in our GovDeal segment grew 152% over the prior year's comparable quarter, driven by the increasing adoption of our digital marketplace solution by government agencies over the traditional sales methods used for a broader array of assets, including vehicles, heavy equipment, and real estate. GMV in our retail supply chain group segment grew 36% over the prior year's comparable quarter as large and SMB retail sellers expanded their use of our digital marketplaces and reverse supply chain solutions to capitalize on the secular growth of e-commerce. GMV in our capital assets group segment increased 37% over the prior year's comparable quarter, driven by customer adoption of our online platform for the sale of heavy equipment, energy, and biopharma assets in North America, and strong consignment sales events in Asia Pacific. Our machinio segment grew revenue by 38% over the prior year's comparable quarter, as equipment owners and dealers continued to demonstrate strong engagement with our digital marketing and inventory management solutions. Our newest marketplace, AllSurplus.com, also continued to thrive as new buyer registrations on the platform grew nearly 150% from a year ago, fueling strong GMB growth and price realization for sellers in key asset categories such as transportation, construction, real estate, consumer goods, and biopharma. We exited the quarter with $112 million of cash and zero debt, and we continue to look for intelligent uses of cash, including organic growth initiatives to further penetrate large untapped opportunities in our existing markets, share repurchases, and tuck-in acquisitions. Similar to the Rule of 40, we have established a framework for profitable growth to guide our investment decisions focused on achieving an attractive growth and gross profit paired with an acceptable non-GAAP adjusted EBITDA margin as a percentage of gross profit. For the trailing 12 months through Q3, our gross profit, which is a proxy for net revenues, is up 35% over the prior year. and our non-GAAP adjusted EBITDA margin as a percentage of gross profit is 28%. Based on our current momentum, we anticipate continuing to use this framework to strategically balance investment opportunities as we optimize our technology and services for the long term. In closing, we thank our team members across liquidity services for their dedication, to our mission as the world's largest B2B e-commerce marketplace for business and government surplus. And we're very excited to continue to create value for our customers and shareholders. And now I'll turn it over to Jorge for more details on the quarter.

Thank you, Bill, and good morning. We ended the quarter above guidance on all metrics with continued strength of activity across all our businesses, contributing to the better than expected results. We completed the third quarter of fiscal year 2021 with GMV of $244.7 million and 88% increase from $130.1 million in the same quarter last year. Revenue for the third quarter was $69.7 million, a 46% increase compared to the same quarter last year, while net income for this third quarter was $8.4 million, resulting in diluted earnings per share of $0.24. Non-GAAP adjusted EBITDA was $13.3 million, or 19.1% of revenue. a $9.7 million improvement year over year for the fiscal third quarter ending June 30th of 2021. Compared to last year, our volumes are up and our gross margin is up, which combined with our cost controls over operating expenses yielded fall through, resulting in the solid bottom line results. We are proud of the accomplishments since we began our transformation that has positioned us well to benefit from the accelerated rise in e-commerce B2B activity. We feel poised to further optimize our technology and services as we look ahead to executing on our growth initiatives. Registered buyers are now at almost 4 million, with auction participation up 47% this quarter, which is typically one of our seasonally high quarters. and compared favorably to the pandemic low third quarter last year while completed transactions were up 38% quarter over quarter. The third quarter fiscal year 2021 comparative year over year consolidated financial results demonstrated the impact our multi-year business transformation and investments in technology are having on our businesses. We are driving operating leverage from our platform and diverse service offerings, allowing us to capitalize on the market opportunity presented by the increasing demand for sustainable e-commerce solutions by large enterprises, small businesses, and government entities. We continue to see growing interest in the consignment model, which includes self-directed solutions. and its impact continues to show in our improved gross profit margins as a percent of revenue, which increased to 59% this quarter from 53% last year. Our margins also benefited from the mix of products sold and asset recovery rates achieved, partly influenced by favorable macroeconomic trends in certain asset categories such as transportation. Our bottom line results reflect the overall increase in top line volumes, the benefits to gross profit margin, and leverage in our operating expenses. The prior year comparable period included significant negative top line impacts from the initial COVID-19 related economic restrictions. Specifically comparing these third quarter results to the same quarter last year, our GovDeal segment was up 152% on GMV and 143% on revenue. Our retail RCG segment was up 36% on GMV and up 31% on revenue. And our CAG segment GMV was up 37% and up 33% on revenue. Machinio revenue was up 38%. and Simon GMV activity grew proportionally faster than our purchase offering to seller clients. We have a debt-free balance sheet and ended the quarter with $112.7 million in cash, up $25.1 million from last quarter. We have $15 million in remaining authorization to perform additional share repurchases. We continue to see a strong pipeline, expanding customer relationships and other indicators of positive performance going forward. And we believe we are well positioned to create value by emphasizing platform services that deliver optimal liquidity for our customers, further enabled by our technology-based marketplace solutions. Our fourth quarter of fiscal year 2021 guidance range is above our results for the same period last year, reflecting anticipated increases in transaction volumes and the accelerated market adoption of the online economy that is creating strong demand for our services from both new and existing customers. The COVID-19 restrictions last year accelerated the general macro trend towards greater e-commerce online transacting. Last year's fiscal year fourth quarter did include processing of seller backlog that accumulated during the earlier stage of the pandemic and more than offset what would typically have been a seasonally low fourth quarter. While we expect the resumption of seasonal trends in our results with Fourth quarter of fiscal year 21 being sequentially slightly below Q3, we anticipate year over year growth to continue during the upcoming fiscal fourth quarter. In addition, as part of our Q4 fiscal year 21 guidance, the positive macroeconomic factors that have favorably increased recovery rates in certain asset categories since Q4 of fiscal year 20 are expected to continue even as our expanding volumes drive growth. Management guidance for Q4 of fiscal year 21 is as follows. We expect GMV to range from $225 million to $240 million. GAAP net income is expected in the range of $5.5 million to $8.5 million with a corresponding GAAP diluted earnings per share ranging from 15 cents to 24 cents per share. We estimate non-GAAP adjusted EBITDA to range from 10 to 12 Non-GAAP adjusted diluted earnings per share is estimated in the range of 20 to 28 cents per share. This guidance assumes that we have approximately 35.6 million diluted weighted average shares outstanding during the fourth quarter of fiscal year 2021. Thank you and we will now take questions.