Liquidity Services, Inc.

Welcome to the Liquidity Services, Inc. fourth quarter of fiscal year 2022 financial results conference call. My name is Carmen and I'll be your host 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, 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, December 8th, 2022, 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 the reconciliations of these measures with the comparable GAAP measures as available. Liquidity services management also use certain supplementary 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 Angrig.

Good morning, and welcome to our Q4 earnings call. I'll review our Q4 performance and the progress of our business. And next, Jorge will provide more details on the quarter. We delivered strong EPS and adjusted EBITDA results during the quarter, despite macro challenges which limited the supply of vehicles in our marketplace. This performance reflects our efficient business model and diversified client portfolio. During Q4, the strength of our buyer liquidity in a recessionary environment was on display as the number of auction participants and registered buyers on our platform grew 34% and 24% year over year respectively. For the full year fiscal 2022, we generated a record number of auction participants and completed transactions on our platform, which provided outstanding results for our sellers. We estimate that the lack of vehicles for our customers fleet replacement cycles reduced our GMV by $10 million during the quarter. This combined with abnormally low conversion rates on share of sales in our government real estate vertical resulted in lower than expected GMV during Q4. While these are currently headwinds, we expect these trends to normalize and boost our business as we move through 2023. For our full fiscal year 2022, we're proud of the focus and execution of our team. We continue to advance Our strategic and operational objectives, which translated into a record $1.1 billion of GMB, up 29% over the prior year. Cabinet income of $40.3 million and $42.7 million in non-GAAP adjusted EBITDA. We also grew our registered buyer base to a record $4.9 million, reflecting strong interest in our circular economy platform during this inflationary environment. As we commence fiscal year 2023, we remain focused on expanding our mindshare and position with commercial and government clients as the most trusted marketplace to manage value and sell surplus assets in the circular economy. Despite near-term headwinds in vehicle supply, we have a strong business pipeline and continue to see opportunities to reach $1.5 billion in annualized GMV and expand our technology-enabled asset-like services to drive long-term shareholder value. Our expertise in diverse sectors, strong buyer base across numerous asset categories, and global reach are continuing to provide advantages for our clients as they navigate this current volatile macro environment. Let's take a closer look at the progress of each of our segments and how we're driving market share expansion. Our field segment is making excellent progress in expanding the growth and activity of customers on its marketplace. We continue to grow the number of new accounts and number of assets sold in the mid to high single digit percentages each quarter, despite the current headwind of lower vehicle supply. In fact, we set new records for these metrics during Q4. Additionally, we continue to make progress penetrating our GovDeals customer relationships as their one-stop solution for all asset sales, including their highest value assets. For example, since fiscal 20, our GMV per seller and the number of assets sold per seller on GovDeals have grown 44% and 19% respectively. We're also committed to the relentless improvement of our platform, and we'll be launching the next generation of our GovDeals marketplace in 2023. The beta version of our new GovDeals marketplace was shared with select bidders in Q4 and was extremely well received, resulting in a two times increase in our customer net promoter score. This bodes well for the future, and we expect our modernized GovDeals platform An introduction of more data-driven features will increase our recovery rates and lift GovDeals GMV materially over time. As client vehicle replenishment cycles normalize, federal infrastructure spending takes hold, and we continue our pace of account acquisition, we see the opportunity to significantly grow the size of our GovDeals business over the next three to five years. In our retail segment, our flexible service offerings have been well received by the marketplace as customers utilize both self-directed and fully managed solutions. Leveraging our distribution center network to reduce supply chain costs and the sale of returned and shelf-pulled goods. While some clients have held on to returned inventory to offer customers compelling early holiday deals, we have a strong new business pipeline and have won several new programs in the big box, omnichannel, and pharmacy sectors, which has continued to diversify and grow our business portfolio in the retail segment. Our retail segment has a large market opportunity, driven by strong secular growth in the volume of return merchandise as customers continue to embrace online retail. For example, according to the National Retail Federation, Retailers expect about 18% or $158 billion of merchandise sold during the holiday shopping season to be returned. Our value added services in particular have been highly prized by our retail segment customers as they help our clients reduce their supply chain costs. Current results reflect that we are still early on in fully leveraging the investments we have made in three new distribution center facilities. We expect retail segment margins to improve as we further leverage this added operational capacity and drive productivity gains. Our CAG segment continues to play the role of a trusted global market maker for high-value equipment in the industrial supply chain. Our ability to support cross-border transactions and financial settlements among counterparties has been increasingly valued given the broad application and demand for the industrial assets we sell. For example, in a recent auction of biopharma assets in Europe for multiple Fortune 500 clients, we had over 100 bidders from 27 countries, including 17 bidders from China, where 60% of the assets were ultimately sold. Our global reach was critical to giving our sellers the best execution. Indeed, our CAG solutions are well positioned to help industrial companies who are in a cost savings mode manage through the current recessionary environment. We anticipate growth in the energy, biopharma, and automotive verticals in particular, and we have landed new mandates with major companies in these areas. As COVID restrictions loosen in China, we have attractive growth opportunities in the APAC region, which have been limited recently. Finally, our CAG heavy equipment fleet category has strong upside potential. we grew our consignment heavy equipment vertical 36% year-over-year in fiscal 2022 and finished the year ahead of plan for signed contracts, new sellers, transacted opportunities, and net new revenue. Finally, our machinio segment continues to scale nicely with expanded coverage and more equipment categories and related services such as financing. We believe our Maschineo digital advertising and storefront solution offers business customers cost savings and convenience that are well-suited to a recessionary environment. We've recently launched a self-directed option for smaller dealer customers to list their equipment directly on the Maschineo marketplace. And we're also offering transaction-based services to Maschineo customers to unlock valuable liquidity for sellers. Finally, we've opened a new Maschineo sales office in China and believe there is a significant growth opportunity for our Maschineo classifieds marketplace and storefront platform in the China market over time. In conclusion, we're focused on executing multiple drivers to create value for our shareholders over time. We've continued to enhance our brand awareness in the marketplace. and plan to double our core business over the next three to five years, which will be aided by the normalization of supply chains and our leverage of the fixed investments we've made in sales, branding and marketing, technology, and operational capacity. Moreover, our capital efficient business with a strong operating cash flow, $98 million in cash and zero debt, provides us with ample flexibility to execute our plans. We've increased our authorized share repurchase capacity to $15 million, and we will continue to deploy our capital on organic growth initiatives, share buybacks, and tuck-in acquisitions. In closing, we thank our team members across liquidity services for their dedication to our mission to power the circular economy to benefit sellers, buyers, and the planet.

I'll turn it over to Jorge for more details on the quarter.

Good morning.

We completed the fourth quarter of fiscal year 2022 with $283.3 million in GMV, which was up 16% from $244.4 million in the same quarter last year. Revenue for this fiscal fourth quarter was $75.2 million, up 7% from $70.3 million in the same quarter last year, and includes the completion of a high purchase transaction volume by our CAG segment. As a reminder, for our business model trend, higher growth of consignment, including growth in the real estate sector, will lower our ratio of revenue as a percent of GMV and cause revenue to grow at a slower rate percent than GMV. This trend can be impacted in the reverse in any period where higher purchase transactions occur. Specifically comparing segment results for this fourth quarter to the same quarter last year, our GovDeal segment was up 20% on GMV and 8% on revenue, including bid for assets. Our retail RSCG segment was up 10% on GMV and up 6% on revenue, And our TAG segment was up 13% on GMV and up 6% on revenue, reflecting an increase in sales conducted with partner organizations that are fully reflected in GMV. Machinio revenue was up 18%. GAAP net income for this fourth quarter was $8.3 million, resulting in diluted GAAP earnings per share of 25 cents. This includes a $4.5 million, or 14 cents per share, non-cash gain from the reduction in fair value of the bid for assets burnout liability, as the expectation of the timing of real estate asset flows continued to shift outside of the earn out period. Non-GAAP adjusted EPS for this fourth quarter was 19 cents, including approximately 3 cents of unfavorable impact to tax expense in the quarter. for estimates of stock base and other variable compensation. The total year 2022 effective tax rate was 15% on GAAP net income, reflecting the non-taxable earn out gain, and 32% for adjusted net income. Non-GAAP adjusted EBITDA was $12.3 million, up from the same quarter last year, primarily due to the higher revenue and reduced variable compensation expense versus the fourth quarter of last year to close out fiscal year 2022. This was partly offset by a lower average segment gross profit margin in CAG on its higher mix of purchase activity this quarter, and the increased sales, operations, and technology expenses compared to a year ago. We hold $97.9 million in cash, cash equivalents, and short-term investments. We have generated operating cash flows of $44.8 million and performed $25.4 million of share repurchases on a trailing 12-month basis. We have zero deaths and $25 million of available borrowing capacity under our credit facility. In the near term, our quarterly results and experience uncertainty in predictability as the current macroeconomic environment lends itself to hesitation by sellers and buyers in the timing of transactions for surplus assets in any given period. As clarity over the direction or severity of global economic challenges unfold, we would anticipate having better visibility on growth in the short term. As a company, we are confident in our business model and strategic direction. Our results in terms of revenue, profitability, and cash have remained solid, even during these turbulent times. Our first quarter of fiscal year 2023 guidance range for GMV is above the same period last year, with year-over-year growth expected across our segments. Relative to the fourth quarter of fiscal year 22, sequentially, Seasonality is a factor as GovDeal GMV may experience a seasonal decline sequentially going into this next fiscal first quarter. Despite the expected year-over-year improvement in volume and buyer and seller activity, we also expect CAG GMV to decline sequentially on lower purchase transaction volume completed during this last fourth quarter of fiscal year 22. GovDeals is also experiencing continued headwinds from vehicle sales in both volume and pricing, given constraints on sales of new vehicles that are resulting in a dampening of availability of used vehicles for sale. However, heavy equipment assets in both GovDeals and CAG remain robust. The retail segment expects to continue to diversify its seller base, transitioning product flows in terms of sellers and categories. Overall, the company sees opportunities to gain market share across our segments. Our profit guidance for the first quarter of fiscal year 2023 reflects expected year-over-year top-line growth with higher labor costs and inclusive of increased sales, technology, and operations expense to support growth during 2023 across our segments. We expect that our effective tax rate overall during fiscal year 2023 will remain at approximately 30%. Management guidance for the first quarter of fiscal year 2023 is as follows. We expect GMB to range from $265 million to $295 million. GAAP net income is expected in the range of $1 million to $4 million with a corresponding GAAP diluted earnings per share range from 3 to 12 cents per share. We estimate non-GAAP adjusted EBITDA to range from $7 million to $10 million. Non-GAAP adjusted diluted earnings per share is estimated in the range of 9 to 18 cents per share. And the GAAP and non-GAAP EPS guidance assumes that we have between 33.5 and 34 million fully diluted weighted average shares outstanding for the first quarter of fiscal year 23. We will now take your questions.

Thank you. And as a reminder, to ask a question, simply press star 1 1 on your telephone. Again, that is star 1 1 on your telephone. One moment for our first question. And we have Gary Prestopino with Barrington Research. Your question, please.

Hi. Good morning, everyone. Hey, Bill, a couple of things here. You talked about the GMV being less than or being hit by headwinds on the vehicle side, $10 million. Then you mentioned lower conversion rates on real estate. Is that a function of higher rates and buyers and sellers not coming together on an agreed-upon price? I mean, was the potential flow-through of real estate where you thought it was going to be or the potential – GMB, you know, post-transaction completion.

Regarding the comment on the government real estate vertical, what we've observed, Gary, is that local counties have made decisions to defer share of sales in part due to consumer-friendly advocacy which is highlighting some residual COVID policies to allow people to get back current with their real estate forbearance or current recessionary pressures, giving policy positions to defer some of these sales. We think that is likely to normalize and reverse in 2023. And therefore, these sales, you know, will happen. So, it's not a bid-ask spread issue. It's really a policy position where people have held back these sales to allow them to become paid off by the individual borrowers or owners. You know, the other thing I would note in the real estate area is we have a very good pipeline. We have contracts that have been awarded that just haven't been implemented yet. And I think there has been somewhat of a backlog in how government agencies have been able to process their their business. So again, part of the larger picture for us is that we do think these things, this log jam will clear out in 2023, and that will give us more visibility and actual GMB traction in the real estate vertical. The vehicles is a well-known industry-wide phenomenon. We've had conversations with our government clients, our commercial clients. There's significant backlog in how OEMs have been working their backlog down. According to a municipal fleet agency, they have said to us there's at least 5 million orders on the books for vehicles that have been backlogged industry-wide. So it gives you a sense of the order of magnitude that agencies and commercial owners, they want the vehicles, they have the money for the vehicles, it's just they're not being produced at the rate that fulfills that demand. And so as that flips from a headwind to a tailwind at some point, we think we'll benefit from it.

Okay. And then could you talk a little bit about this next generation launch for the GovDeals business? What is different in that new, I guess it's a new product website that you're putting out?

Yeah, that's a great question, and I think it's a very important thing. you know, the GovDeal user experience on the front end has been largely intact for over a decade. And, you know, there's a lot of functionality there, but it is not at the same level of responsive design and data-driven search and one-to-one marketing as you would see on our all surplus platform. And therefore, You know, it's really about the front end user experience. It's about the taxonomy and the path to purchase being improved. It's about, you know, putting artificial intelligence tools in place like we have in our all-surface marketplace to guide buyers to the right assets quickly. We think it's going to improve bidder participation, and we think it's going to improve the ultimate GMB realized all things equal for everything we sell. And the leverage there is meaningful because it's a good size marketplace. And we've got our beta in the hands of our test customers already. Phenomenal feedback. As I mentioned, our net promoter score for those that have used the new site more than doubled, which is rare. So we think as that unfolds in 2023, it's just going to improve the path to purchase and the bidding activity and will improve pricing realized for the outlets we sell for our government clients on GovDeals.

Okay, thanks. I'll let somebody else go.

One moment for our next question, please. And it comes from the line of George Sutton with Craig Hallam. Please proceed.

Thank you. Bill, I'm curious as you look at your retail segment, What is the ideal economic scenario for you to see success there, in your view?

Well, in terms of the macro trends, one, you want to have robust growth in online sales, online retail. We think that's a well-entrenched habit among consumers, and we think that is a secular growth area in the economy, and that is – a catalyst for our business because the more that's sold online, as I noted the NRF data, the more that's going to be returned over $150 billion of returns just in the holiday season. So, you know, that's a good thing. I think bargain hunting kind of environments are a good thing on the buyer side. So when we have a little bit of a ripple around recession, buyers are looking for deals. So they're going to be looking to save money. And our buyer base has been very active as I noted on our, on our metrics. I think that's a positive. In terms of the retailers themselves, I think retailers are kind of balancing wanting to have good deals in stock. And we all got emails probably in October for holiday sales. So they pulled forward a lot of those Black Friday concepts earlier in the year. So they were holding some inventory maybe that they would have otherwise liquidated. But I think as you get out of the holiday season, you're going to see you know, normalization of flows into our reverse supply chain. And I think retailers are going to be looking to be, you know, continue to invest in omnichannel experiences, continue to invest in convenience through their core e-commerce platforms. I think, you know, the consumer, you know, the Bank of America data that came out says the consumers still have more savings than they had pre-pandemic. So, You know, it seems like the consumer's holding up. I think that's net positive for the retail environment. And ultimately, you know, we think that's helpful for us. You know, the more spending on goods, the better. We've commented, George, you know, how during the course of 2022, people had shifted their behavior from, you know, buying goods to buying services and experiences. So that affected, you know, retail at large. in some of their same store sales activity. And I commented earlier in the year that we feel like that's going to reverse and people will normalize their spending behavior in 2023. So I don't have the crystal ball. Are we going to have a soft landing as the Fed tightens or something that's a little harsher? We would like to see more of a soft landing. We'd like to see the consumer continue to have discretionary savings and continue to normalize to where they were in early 2022. But even in the recession environment, our bargain frugal buyer base is a very strong competitive advantage. And I think if retailers have to cut costs and hollow out their corporate resources, they'll be more reliant on the value-added services and facilities, the liquidity services offers. So we think we're well positioned there.

Looking at the vehicle supply side, in a very hypothetical, admittedly, scenario of a Carvana, which could end up liquidating, not making a prediction, just it's a scenario suggestion, what would that potentially do for your business?

Specifically in the vehicle category?

Correct. If there's a whole lot of additional vehicles all of a sudden on the market from a supply perspective.

Well, yeah, well, I can tell you that we've had conversations with wholesale automotive dealers who are looking in many cases for the first time to utilize our marketplace platform and, you know, create a new channel for liquidity If vehicles are sitting unsold, that's not a good thing for these automotive wholesale dealerships. So we present our marketplace as another avenue for that asset class to be monetized. And we sell, as you know, a lot of vehicles in the used market, and that liquidity is an asset for anyone looking to manage their balance sheet in the vehicle market.

Gotcha. And last question. I don't know if it was simply a throwaway line in your text, but you mentioned expanding Mindshare with customers this year and that being a focus. Could you walk through how you're planning to expand that Mindshare? Give us a little bit of a sense of the marketing plans.

Sure. Well, we've invested in expanding our corporate communications team to do I think very targeted brand awareness campaigns within these large corporate clients and in many cases, government organizations to bring them the receipts, if you will, on the work that we've done, the actual transactions that we've completed, the case studies, the recovery that we generate. And so it's content that's created and then delivered through very targeted communications to influencers and decision makers that may not necessarily be direct clients of ours, but have oversight of the supply chain operations, the CFO's office, the compliance office within global manufacturers, global retailers, government agencies. And, you know, that might be delivered digitally, and it might deliver you to a case study or a landing page. and allow you to learn more. We also have industry-specific insights that we're delivering, for example, in automotive, energy, and biopharma that give you, I think, relevant data on the market-making activity in those areas. So if you're a CFO, I think it's really helpful to know what on my balance sheet could I monetize to raise capital in a period where maybe we have to pull back from some of our spending. I think that's been well-received. We also have a presence as a thought leader and speaker in a number of government industry associations. We have national cooperative arrangements directly as a result of these efforts. So we are really just linking the data of our marketplace with insights and delivering that in a scalable way through a lot of digital marketing activities. And we do have recognition happening George through sustainability awards, through vendor excellence awards with many of our clients, and those are shared through more of a traditional corporate communications press release type format.

So just to be clear, and this is my final question, relative to spending for this objective, none of this sounds expensive. This seems simply a leveraging of your existing data. More so than anything, there's no needing to walk into Jorge's office for more dollars to achieve this.

Yes, that's fair. And, you know, the headcount associated with operationalizing these ideas, you know, we've already accounted for.

Perfect. Thanks, guys.

Thank you. One moment for our next question.

From Gary Presopino with Barrington Research, please proceed.

Hi. Just a couple of questions picking up on that last thought process. I mean, last year you said you were going through another kind of spending investment on sales, technology, et cetera. Is that really about over in terms of having to add more people, put more people power behind your technology initiatives. I mean, your sales were up 8% last year. If you back out the reversal of the year now, it looks like your overall expenses were up about 11%. So I just want to get an idea as we go forward. Can we expect to see more of an equilibrium or even maybe sales growth that would be in excess of the OpEx expenses in fiscal 23?

In terms of the investments in expanding staff and operational capacity, you're correct. We took a step up in fiscal 22. We will not see the same step function growth in those areas in 2023. I mentioned we have three new facilities that we funded essentially over a 12-month period to support demand in the retail segment. In terms of the sales team, and coverage, we still feel like we're under-penetrated, Gary, in many regions of the country. And, you know, it is an e-commerce platform, but we also know that having access to our team and our insights is helpful in attracting new clients and organizations, both in the government market and the commercial market, so areas like Florida. Southeast region, which has had huge migration in terms of population and therefore flush with municipal revenues. That's an area that's under penetrated for us. So we are going to continue to find ways to serve those areas. But we don't, in terms of rate of growth of spend, that will moderate. And when I talk about the GovDeals modernization, we're leveraging, technologies that we've already deployed other places within liquidity services. So it's not a massive undertaking for us in terms of costs. And it's an interesting time when you look at the amount of technology talent that's now in the marketplace. You've had massive layoffs in many of the big tech world. So we're always looking to be prudent and acquisitive if we can get great engineering talent um through direct hires or aqua hairs but we don't see you know structurally any major step function increases in our spending okay um thank you i appreciate that

Thank you and I'm not showing any further questions at this time. Thank you, ladies and gentlemen. This concludes today's call. Thank you for participating and you may now disconnect. you Thank you. you

Thank you.

Welcome to the Liquidity Services, Inc. fourth quarter of fiscal year 2022 financial results conference call. My name is Carmen and I'll be your host 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, 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, December 8, 2022, 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 the reconciliations of these measures with the comparable GAAP measures as available. Liquidity services management also use certain supplementary 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 Angrig.

Good morning, and welcome to our Q4 earnings call. I'll review our Q4 performance and the progress of our business. And next, Jorge will provide more details on the quarter. We delivered strong EPS and adjusted EBITDA results during the quarter, despite macro challenges which limited the supply of vehicles in our marketplace. This performance reflects our efficient business model and diversified client portfolio. During Q4, the strength of our buyer liquidity in a recessionary environment was on display as the number of auction participants and registered buyers on our platform grew 34% and 24% year over year respectively. For the full year fiscal 2022, we generated a record number of auction participants and completed transactions on our platform, which provided outstanding results for our sellers. We estimate that the lack of vehicles for our customers fleet replacement cycles reduced our GMV by $10 million during the quarter. This combined with abnormally low conversion rates on share of sales in our government real estate vertical resulted in lower than expected GMV during Q4. While these are currently headwinds, we expect these trends to normalize and boost our business as we move through 2023. For our full fiscal year 2022, we're proud of the focus and execution of our team. We continue to advance Our strategic and operational objectives, which translated into a record $1.1 billion of GMB, up 29% over the prior year. Cabinet income of 40.3 million and 42.7 million in non-GAAP adjusted EBITDA. We also grew our registered buyer base to a record 4.9 million, reflecting strong interest in our circular economy platform during this inflationary environment. As we commence fiscal year 2023, we remain focused on expanding our mind share and position with commercial and government clients as the most trusted marketplace to manage value and sell surplus assets in the circular economy. Despite near-term headwinds in vehicle supply, we have a strong business pipeline and continue to see opportunities reach $1.5 billion in annualized GMV and expand our technology-enabled asset-like services to drive long-term shareholder value. Our expertise in diverse sectors, strong buyer base across numerous asset categories, and global reach are continuing to provide advantages for our clients as they navigate this current volatile macro environment. Let's take a closer look at the progress of each of our segments and how we're driving market share expansion. Our field segment is making excellent progress in expanding the growth and activity of customers on its marketplace. We continue to grow the number of new accounts and number of assets sold in the mid to high single digit percentages each quarter, despite the current headwind of lower vehicle supply. In fact, we set new records for these metrics during Q4. Additionally, we continue to make progress penetrating our GovDeals customer relationships as their one-stop solution for all asset sales, including their highest value assets. For example, since fiscal 20, our GMV per seller and the number of assets sold per seller on GovDeals have grown 44% and 19% respectively. We're also committed to the relentless improvement of our platform, and we'll be launching the next generation of our GovDeals Marketplace in 2023. The beta version of our new GovDeals Marketplace was shared with select bidders in Q4 and was extremely well received, resulting in a two times increase in our customer net promoter score. This bodes well for the future, and we expect our modernized GovDeals platform An introduction of more data-driven features will increase our recovery rates and lift GovDeals GMV materially over time. As client vehicle replenishment cycles normalize, federal infrastructure spending takes hold, and we continue our pace of account acquisition, we see the opportunity to significantly grow the size of our GovDeals business over the next three to five years. In our retail segment, our flexible service offerings have been well received by the marketplace as customers utilize both self-directed and fully managed solutions. Leveraging our distribution center network to reduce supply chain costs and the sale of returned and shelf-pulled goods. While some clients have held on to returned inventory to offer customers compelling early holiday deals, we have a strong new business pipeline and have won several new programs in the big box, omnichannel, and pharmacy sectors, which has continued to diversify and grow our business portfolio in the retail segment. Our retail segment has a large market opportunity, driven by strong secular growth in the volume of return merchandise as customers continue to embrace online retail. For example, according to the National Retail Federation, Retailers expect about 18% or $158 billion of merchandise sold during the holiday shopping season to be returned. Our value added services in particular have been highly prized by our retail segment customers as they help our clients reduce their supply chain costs. Current results reflect that we are still early on in fully leveraging the investments we have made in three new distribution center facilities. We expect retail segment margins to improve as we further leverage this added operational capacity and drive productivity gains. Our CAG segment continues to play the role of a trusted global market maker for high-value equipment in the industrial supply chain. Our ability to support cross-border transactions and financial settlements among counterparties has been increasingly valued given the broad application and demand for the industrial assets we sell. For example, in a recent auction of biopharma assets in Europe for multiple Fortune 500 clients, we had over 100 bidders from 27 countries, including 17 bidders from China, where 60% of the assets were ultimately sold. Our global reach was critical to giving our sellers the best execution. Indeed, our CAG solutions are well positioned to help industrial companies who are in a cost savings mode manage through the current recessionary environment. We anticipate growth in the energy, biopharma, and automotive verticals in particular, and we have landed new mandates with major companies in these areas. As COVID restrictions loosen in China, we have attractive growth opportunities in the APAC region, which have been limited recently. Finally, our CAG heavy equipment fleet category has strong upside potential. we grew our consignment heavy equipment vertical 36% year-over-year in fiscal 2022 and finished the year ahead of plan for signed contracts, new sellers, transacted opportunities, and net new revenue. Finally, our machinio segment continues to scale nicely with expanded coverage and more equipment categories and related services such as financing. We believe our Maschineo digital advertising and storefront solution offers business customers cost savings and convenience that are well suited to a recessionary environment. We've recently launched a self-directed option for smaller dealer customers to list their equipment directly on the Maschineo marketplace. And we're also offering transaction-based services to Maschineo customers to unlock valuable liquidity for sellers. Finally, we've opened a new Maschineo sales office in China and believe there is a significant growth opportunity for our Maschineo classified marketplace and storefront platform in the China market over time. In conclusion, we're focused on executing multiple drivers to create value for our shareholders over time. We've continued to enhance our brand awareness in the marketplace. and plan to double our core business over the next three to five years, which will be aided by the normalization of supply chains and our leverage of the fixed investments we've made in sales, branding and marketing, technology, and operational capacity. Moreover, our capital efficient business with a strong operating cash flow, $98 million in cash and zero debt, provides us with ample flexibility to execute our plans. We've increased our authorized share repurchase capacity to $15 million, and we will continue to deploy our capital on organic growth initiatives, share buybacks, and tuck-in acquisitions. In closing, we thank our team members across liquidity services for their dedication to our mission to power the circular economy to benefit sellers, buyers, and the planet.

I'll turn it over to Jorge for more details on the quarter.

Good morning.

We completed the fourth quarter of fiscal year 2022 with $283.3 million in GMV, which was up 16% from $244.4 million in the same quarter last year. Revenue for this fiscal fourth quarter was $75.2 million, up 7% from $70.3 million in the same quarter last year, and includes the completion of a high purchase transaction volume by our cash segment. As a reminder, for our business model trend, higher growth of consignment, including growth in the real estate sector, will lower our ratio of revenue as a percent of GMV and cause revenue to grow at a slower rate percent than GMV. This trend can be impacted in the reverse in any period where higher purchase transactions occur. Specifically comparing segment results for this fourth quarter to the same quarter last year, our GovField segment was up 20% on GMV and 8% on revenue, including bid for assets. Our retail RSCG segment was up 10% on GMV and up 6% on revenue, and our TAG segment was up 13% on GMV and up 6% on revenue, reflecting an increase in sales conducted with partner organizations that are fully reflected in GMV. Machinio revenue was up 18%. GAAP net income for this fourth quarter was $8.3 million, resulting in diluted GAAP earnings per share of 25 cents. This includes a $4.5 million, or 14 cents per share, non-cash gain from the reduction in fair value of the bid for assets' earn out liability, as the expectation of the timing of real estate asset flows continued to shift outside of the earn out period. Non-GAAP adjusted EPS for this fourth quarter was 19 cents, including approximately 3 cents of unfavorable impact to tax expense in the quarter. for estimates of stock base and other variable compensation. The total year 2022 effective tax rate was 15% on GAAP net income, reflecting the non-taxable earn out gain, and 32% for adjusted net income. Non-GAAP adjusted EBITDA was $12.3 million, up from the same quarter last year, primarily due to the higher revenue and reduced variable compensation expense versus the fourth quarter of last year to close out fiscal year 2022. This was partly offset by a lower average segment gross profit margin in CAG on its higher mix of purchase activity this quarter, and the increased sales, operations, and technology expenses compared to a year ago. We hold $97.9 million in cash, cash equivalents, and short-term investments. have generated operating cash flows of 44.8 million dollars and performed 25.4 million dollars of share repurchases on a trailing 12-month basis we have zero debt and 25 million dollars of available borrowing capacity under our credit facility in the near term our quarterly results and experience uncertainty in predictability as the current macroeconomic environment lends itself to hesitation by sellers and buyers in the timing of transactions for surplus assets in any given period. As clarity over the direction or severity of global economic challenges unfold, we would anticipate having better visibility on growth in the short term. As a company, we are confident in our business model and strategic direction. Our results in terms of revenue, profitability, and cash have remained solid, even during these turbulent times. Our first quarter of fiscal year 2023 guidance range for GMV is above the same period last year, with year-over-year growth expected across our segments. Relative to the fourth quarter of fiscal year 22, sequentially, Seasonality is a factor as GovDeal GMV may experience a seasonal decline sequentially going into this next fiscal first quarter. Despite the expected year-over-year improvement in volume and buyer and seller activity, we also expect CAG GMV to decline sequentially on lower purchase transaction volume completed during this last fourth quarter of fiscal year 22. GovDeals is also experiencing continued headwinds from vehicle sales in both volume and pricing, given constraints on sales of new vehicles that are resulting in a dampening of availability of used vehicles for sale. However, heavy equipment assets in both GovDeals and CAG remain robust. The retail segment expects to continue to diversify its seller base, transitioning product flows in terms of sellers and categories. overall the company sees opportunities to gain market share across our segment our profit guidance for the first quarter of fiscal year 2023 reflects expected year-over-year top-line growth with higher labor costs and inclusive of increased sales technology and operations expense to support growth during 2023 across our segments We expect that our effective tax rate overall during fiscal year 2023 will remain at approximately 30%. Management guidance for the first quarter of fiscal year 2023 is as follows. We expect GMB to range from $265 million to $295 million. GAAP net income is expected in the range of $1 million to $4 million with a corresponding GAAP diluted earnings per share range from 3 to 12 cents per share. We estimate non-GAAP adjusted EBITDA to range from $7 million to $10 million. Non-GAAP adjusted diluted earnings per share is estimated in the range of 9 to 18 cents per share. And the GAAP and non-GAAP EPS guidance assumes that we have between 33.5 and 34 million fully diluted weighted average shares outstanding for the first quarter of fiscal year 23. We will now take your questions.

Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone. Again, that is star 11 on your telephone. One moment for our first question. And we have Gary Prestopino with Barrington Research. Your question, please. Hi.

Good morning, everyone. Hey, Bill, a couple of things here. You talked about the GMV being less than or being hit by headwinds on the vehicle side, $10 million. Then you mentioned lower conversion rates on real estate. Is that a function of higher rates and buyers and sellers not coming together on an agreed-upon price? Was the potential flow-through of real estate where you thought it was going to be or the potential – GMB, you know, post-transaction completion.

Regarding the comment on the government real estate vertical, what we've observed, Gary, is that local counties have made decisions to defer share of sales in part due to consumer-friendly advocacy which is highlighting some residual COVID policies to allow people to get back current with their real estate forbearance or current recessionary pressures, giving policy positions to defer some of these sales. We think that is likely to normalize and reverse in 2023. And therefore, these sales, you know, will happen. So, it's not a bid-ask spread issue. It's really a policy position where people have held back these sales to allow them to become paid off by the individual borrowers or owners. You know, the other thing I would note in the real estate area is we have a very good pipeline. We have contracts that have been awarded that just haven't been implemented yet. And I think there has been somewhat of a backlog in how government agencies have been able to process their their business. So, again, part of the larger picture for us is that we do think these things, this logjam will clear out in 2023, and that will give us more visibility and actual GMB traction in the real estate vertical. The vehicles is a well-known industry-wide phenomenon. We've had conversations with our government clients, our commercial clients. There's significant backlog in how OEMs have been you know, working their backlog down. According to a municipal fleet agency, they have said to us there's at least 5 million orders on the books for vehicles that have been backlogged industry-wide. So it gives you a sense of the order of magnitude that, you know, agencies and commercial owners, they want the vehicles, they have the money for the vehicles, it's just they're not being produced at the rate that fulfills that demand. And so as that flips from a headwind to a tailwind at some point, we think we'll benefit from it.

Okay.

And then could you talk a little bit about this next generation launch for the GovDeals business? What is different in that new, I guess it's a new product website that you're putting out?

Yeah, that's a great question, and I think it's a very important thing. you know, the GovDeal user experience on the front end has been largely intact for over a decade. And, you know, there's a lot of functionality there, but it is not at the same level of responsive design and data-driven search and one-to-one marketing as you would see on our all surplus platform. And therefore, you know, it's really about the front end user experience. It's about the taxonomy and the path to purchase being improved. It's about, you know, putting artificial intelligence tools in place like we have in our all surplus marketplace to guide buyers to the right assets quickly. We think it's going to improve better participation and we think it's going to improve the ultimate GMB realized all things equal for everything we sell. And the leverage there is meaningful because it's a good-sized marketplace. And we've got our beta in the hands of our test customers already. Phenomenal feedback. As I mentioned, our net promoter score for those that have used the new site more than doubled, which is rare. So we think as that unfolds in 2023, it's just going to improve the path to purchase and the bidding activity and will improve pricing realized for the outlets we sell for our government clients on GovDeals.

Okay, thanks. I'll let somebody else go.

One moment for our next question, please. And it comes from the line of George Sutton with Craig Hallam. Please proceed.

Thank you. Bill, I'm curious as you look at your retail segment, What is the ideal economic scenario for you to see success there, in your view?

Well, in terms of the macro trends, one, you want to have robust growth in online sales, online retail. We think that's a well-entrenched habit among consumers, and we think that is a secular growth area in the economy, and that is – a catalyst for our business because the more that's sold online, as I noted the NRF data, the more that's going to be returned over $150 billion of returns just in the holiday season. So, you know, that's a good thing. I think bargain hunting kind of environments are a good thing on the buyer side. So when we have a little bit of a ripple around recession, buyers are looking for deals. So they're going to be looking to save money. And our buyer base has been very active as I noted on our, on our metrics. I think that's a positive. In terms of the retailers themselves, I think retailers are kind of balancing wanting to have good deals in stock. And we all got emails probably in October for holiday sales. So they pulled forward a lot of those Black Friday concepts earlier in the year. So they were holding some inventory maybe that they would have otherwise liquidated. But I think as you get out of the holiday season, you're going to see you know, normalization of flows into our reverse supply chain. And I think retailers are going to be looking to be, you know, continue to invest in omnichannel experiences, continue to invest in convenience through their core e-commerce platforms. I think, you know, the consumer, you know, the Bank of America data that came out says that consumers still have more savings than they had pre-pandemic. So, You know, it seems like the consumer is holding up. I think that's net positive for the retail environment. And ultimately, you know, we think that's helpful for us. You know, the more spending on goods, the better. We've commented, George, you know, how during the course of 2022, people had shifted their behavior from, you know, buying goods to buying services and experiences. So that affected, you know, retail at large. in some of their same store sales activity. And I commented earlier in the year that we feel like that's going to reverse and people will normalize their spending behavior in 2023. So I don't have the crystal ball. Are we going to have a soft landing as the Fed tightens or something that's a little harsher? We would like to see more of a soft landing. We'd like to see the consumer continue to have discretionary savings and continue to normalize to where they were in early 2022. But even in the recession environment, our bargain frugal buyer base is a very strong competitive advantage. And I think if retailers have to cut costs and hollow out their corporate resources, they'll be more reliant on the value-added services and facilities, the liquidity services offers. So we think we're well positioned there.

Looking at the vehicle supply side, in a very hypothetical, admittedly, scenario of a Carvana, which could end up liquidating, not making a prediction, just it's a scenario suggestion, what would that potentially do for your business?

Specifically in the vehicle category?

Correct. If there's a whole lot of additional vehicles all of a sudden on the market from a supply perspective, what would that mean to you?

Yeah, well, I can tell you that we've had conversations with wholesale automotive dealers who are looking, in many cases, for the first time to utilize our marketplace platform and create a new channel for liquidity If vehicles are sitting unsold, that's not a good thing for these automotive wholesale dealerships. So we present our marketplace as another avenue for that asset class to be monetized. And we sell, as you know, a lot of vehicles in the used market, and that liquidity is an asset for anyone looking to manage their balance sheet in the vehicle market.

Gotcha. And last question. I don't know if it was simply a throwaway line in your text, but you mentioned expanding Mindshare with customers this year and that being a focus. Could you walk through how you're planning to expand that Mindshare? Give us a little bit of a sense of the marketing plans.

Sure. Well, we've invested in expanding our corporate communications team to do I think very targeted brand awareness campaigns within these large corporate clients and in many cases, government organizations to bring them the receipts, if you will, on the work that we've done, the actual transactions that we've completed, the case studies, the recovery that we generate. And so it's content that's created and then delivered through very targeted communications to influencers and decision makers that may not necessarily be direct clients of ours, but have oversight of the supply chain operations, the CFO's office, the compliance office within global manufacturers, global retailers, government agencies. And, you know, that might be delivered digitally, and it might deliver you to a case study or a landing page. and allow you to learn more. We also have industry-specific insights that we're delivering, for example, in automotive, energy, and biopharma that give you, I think, relevant data on the market-making activity in those areas. So if you're a CFO, I think it's really helpful to know what on my balance sheet could I monetize to raise capital in a period where maybe we have to pull back from some of our spending. I think that's been well-received. We also have a presence as a thought leader and speaker in a number of government industry associations. We have national cooperative arrangements directly as a result of these efforts. So we are really just linking the data of our marketplace with insights and delivering that in a scalable way through a lot of digital marketing activities. And we do have recognition happening George through sustainability awards, through vendor excellence awards with many of our clients, and those are shared through more of a traditional corporate communications press release type format.

So just to be clear, and this is my final question, relative to spending for this objective, none of this sounds expensive. This seems simply a leveraging of your existing data. More so than anything, there's no needing to walk into Jorge's office for more dollars to achieve this.

Yes, that's fair. And, you know, the headcount associated with operationalizing these ideas, you know, we've already accounted for.

Perfect. Thanks, guys.

Thank you. One moment for our next question.

From Gary Presopino with Barrington Research, please proceed.

Hi. Just a couple of questions picking up on that last thought process. I mean, last year you said you were going through another kind of spending investment on sales, technology, et cetera. Is that really about over in terms of having to add more people, put more people power behind your technology initiatives. I mean, your sales were up 8% last year. If you back out the reversal of the year now, it looks like your overall expenses were up about 11%. So I just want to get an idea as we go forward. Can we expect to see more of an equilibrium or even maybe sales growth that would be in excess of the OPEX expenses in fiscal 23?

In terms of the investments in expanding staff and operational capacity, you're correct. We took a step up in fiscal 22. We will not see the same step function growth in those areas in 2023. I mentioned we have three new facilities that we funded essentially over a 12 month period to support demand in the retail segment. In terms of the sales team, and coverage, we still feel like we're under-penetrated, Gary, in many regions of the country. And, you know, it is an e-commerce platform, but we also know that having access to our team and our insights is helpful in attracting new clients and organizations, both in the government market and the commercial market, so areas like Florida. Southeast region, which has had huge migration in terms of population and therefore flush with municipal revenues. That's an area that's under penetrated for us. So we are going to continue to find ways to serve those areas. But we don't, in terms of rate of growth of spend, that will moderate. And when I talk about the GovDeals modernization, we're leveraging technologies that we've already deployed other places within liquidity services. So it's not a, you know, massive undertaking for us in terms of costs. And, you know, it's an interesting time when you look at the amount of technology talent that's now in the marketplace. You've had massive layoffs in many of the big tech world. So, you know, we're always looking to be prudent and acquisitive if we can get great engineering talent through direct hires or aqua hires, but we don't see structurally any major step function increases in our spending.

Okay. Thank you. I appreciate that.

Thank you and I'm not showing any further questions at this time. Thank you ladies and gentlemen. This concludes today's call. Thank you for participating and you may now disconnect.