Liquidity Services, Inc.

Welcome to the Liquidity Services, Inc. Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. My name is Jenny. 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 Engrick, Liquidity Services Chairman and Chief Executive Officer, and Jorge Zelaya, Executive Vice President and Chief Financial Officer. They will be available for questions after the prepared remarks. The following discussion and responses to your questions reflect Liquidity Services Management's views as of today, December 9, 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 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 service management also used 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 a substitute for or superior to GAAP results. At this time, I will turn the presentation over to Liquidity Services CEO, Bill Engrick.

Good morning, and welcome to our Q4 earnings call. I'll review our Q4 performance and provide an update on key strategic initiatives. Next, Jorge Celaya will provide more details on the quarter. We are grateful for our team's efforts to safely deliver outstanding results for our customers during the quarter. liquidity services recorded outstanding growth during fiscal year 2021, driven by strong demand from both new and existing customers for our e-commerce marketplace solutions, which continue to power the $100 billion circular economy, benefiting businesses, society, and the environment. During the fourth 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. Q4 GMB was up 24% year-over-year, representing our fifth consecutive quarter of 20% plus annual GMB growth. Reflecting on our fiscal year 2021, we are pleased with the consistent execution of our team in support of our mission to build a better future for surplus as we closed fiscal year 21 with $886.7 million in GMB, up 43% year-over-year, and delivered excellent growth across all our segments, resulting in strong profitability and cash flow generation. For the full year of fiscal 21, our transaction volume was up 27% year over year, and the number of our auction participants was up 20% year over year, reflecting the strength of our global buyer base and convenience of our digital solutions. During fiscal year 21, the power of our asset-light business model was on display as we generated over $65 million of operating cash flow, repurchased $31 million of our stock and ended the year with $106 million of cash and zero debt. Our business is at the intersection of several powerful market forces which will benefit our business for years to come as we lead the digital transformation of the $100 billion circular economy. These macro trends include The growth of online commerce, which drives more product returns. The world's increasing focus on sustainability, which encourages the redeployment and sale of used assets. And finally, the massive disruption in global supply chains driven by product innovation and changes in cross-border trading relationships, which requires strategies to exit legacy assets. Earlier this year, we established an objective of achieving $1 billion of annualized GMB. I am pleased to report that we expect to achieve that run rate milestone in our current December quarter. Given our progress, we have established a new near-term objective of scaling to $1.5 billion in annualized GMB, and accordingly, we are aggressively investing in our people, products, and technology to achieve this new target. While these growth investments will pressure our near-term earnings, we expect to realize strong year-over-year growth for the full year fiscal 22 and beyond. Looking forward to fiscal year 22, we are making several strategic investments to expand and scale the solutions we offer to large enterprises, small businesses, and government agencies across the world. In our GovDeals segment, our recent acquisition of Bid for Assets strengthens and expands our penetration of the $2 billion-plus government real estate market opportunity and doubles the size of liquidity services' overall public sector market opportunity. Our new northern Pennsylvania distribution center expands our footprint in the high-density northeast corridor to accommodate the growing number of returns and unsold items generated from our clients' and is a natural extension of our e-commerce marketplace and logistics infrastructure. Finally, the strong customer adoption of our all surplus marketplace and Maschineo digital marketing and inventory management solutions within the construction, vehicle fleet, and industrial asset verticals allows us to continue to invest in the expansion of our sales and marketing capacity in these areas during fiscal year 22. With a profitable, growing business, we continue to look for intelligent uses of our cash, including organic growth initiatives to further penetrate large untapped opportunities in our existing markets, share repurchases, and tuck in acquisitions. In closing, we thank our team members across liquidity services for their dedication to our mission as the leading global commerce company, providing trusted marketplace platforms that power the circular economy. And we are excited to continue to create value for our customers and our shareholders. I'll now turn it over to Jorge for more details on the quarter.

Thank you, Bill. We have been very pleased with our results for the year, our growth and profitability. In fiscal year 2021, we saw our business model gain, can gain operating leverage as we scale up with higher GMV volumes across our business segments and marketplaces. We closed the fiscal year ending September 30th, 2021 with $886.7 million in GMV up 43% over the prior year, growth that was diversified across all our segments, resulting in increased profitability and strong cash generation. Non-GAAP adjusted EBITDA was $42.9 million. Cash from operations was $65.4 million. And we closed the year with $106.3 million in cash and a debt-free balance sheet after completing $31.1 million in share repurchases during the year. including 15 million in share buyback during the fourth quarter. We have received a new authorization to expand the repurchase of an additional 20 million in shares. We completed the fourth quarter of fiscal year 2021 with GMV of $244.4 million, a 24% year-over-year increase from $196.9 million in the prior year's comparable period. Revenue for the fourth quarter was $70.3 million, a 26% increase compared to the same quarter last year, while net income for this fourth quarter was $32.8 million, resulting in diluted earnings per share of $0.93, which included a $24.6 million or $0.70 per share benefit from the release of our valuation allowance on U.S. deferred tax assets. Non-GAAP adjusted EBITDA was $11.4 million, a $2.4 million improvement. Specifically comparing these fourth quarter results to the same quarter last year. Our GovDeal segment was up 20% on GMV and revenue. Our Retail or RSCG segment was up 10% on GMV and up 16% on revenue. And our CAG segment GMV was up 60%. and up 69% on revenue. Mascino's revenue was up 47%. For the quarter, registered buyers are now over 4 million, with auction participation up 9% and completed transactions up 44% over the same quarter last year. We continue to focus on driving growth and diversifying our service offerings and growing our client base. We are making investments targeting market opportunities across our segments. In our GovDeal segments, our acquisition of Bid for Assets on November 1st broadens our government real estate auction solutions. We also see potential long-term opportunities to grow in categories such as equipment from government sellers as infrastructure projects take hold across the U.S. In our retail segment, we launched All Surplus Deals, a direct-to-consumer marketplace for retail surplus, and we opened a new distribution center to address customer demand in the Northeast U.S. for our full-service solutions. In our CAG segment, we see growing demand for heavy equipment, vehicles, and industrial manufacturing equipment across the globe, leading to elevated recovery rates. Our first quarter of fiscal year 2022 guidance range for GMV is above the same period last year with anticipated increases in transaction volumes across our segments and sustained positive macroeconomic factors that have favorably influenced recovery rates in key categories, even as we enter a traditionally seasonally low fiscal first quarter. With the continued strength of our consignment model across our segments, and as bid for assets and other government real estate grows as a category within the GovDeals segment, we expect that revenue as a percent of GMV will move towards the low end of our typical revenue to GMV ratio. Our profit guidance for fiscal first quarter of 2022 is at to below the same period last year reflecting increased costs related to growing the capacity of our sales, marketing, product development, and technology teams, incremental investment in our technology platform, and higher market-driven labor costs, all supporting future growth. Operating leverage is expected to improve throughout fiscal year 2022 as we continue to grow GMV. We anticipate a year-over-year decline in gross profit margins in this first quarter of fiscal year 2022 due to some product flow mix changes this quarter in our retail segment. Additionally, as a result of reversing our tax valuation allowance this past quarter due to our strong return to profitability and forward-looking trends, Our effective tax rate is expected to increase starting this first quarter of fiscal year 2022 to approximately 18 to 20% from 4.5% for 2021. This one excluding the effect of the valuation allowance reversal itself. This higher effective tax rate will have no corresponding increase in cash paid for income taxes for 2022. but will, of course, have negative year over year comparable impacts to our 2022 net income and earnings per share. Our fiscal first quarter guidance does include expected results from bid for assets as part of our GovDeals segment, which contributes to a portion of the overall increase in GMV relative to the same period last year. We expect the existing GovDeals business GMV to continue to grow at a rate consistent with recent trends contributing this fiscal first quarter to the majority of the expected year-over-year growth for the GovDeal segment GMV. We are planning for a convergence of existing GovDeal's real estate activity and bid for assets to drive GMV growth in the real estate category going forward and for the results of bid for assets to grow throughout 2022 and be accretive to our full-year 2022 financial results. excluding any potential impact from changes in the fair value of the earn-out liability associated with a transaction that will be remeasured at the end of each quarter during 2022. Management guidance for the first quarter of fiscal year 22 is as follows. We expect GMV to range from $230 million to $260 million. Gap net income is expected in the range of $1 million to $4 million. with a corresponding GAAP diluted earnings per share ranging from 3 cents to 11 cents per share. We estimate non-GAAP adjusted EBITDA to range from $6 million to $9 million. Non-GAAP adjusted diluted earnings per share is estimated in the range of 8 cents to 17 cents per share. The GAAP and non-GAAP EPS guidance assumes we have approximately 35.6 million fully diluted weighted average shares outstanding during the first quarter of fiscal year 2022. We will now take your questions.