Liquidity Services, Inc.

Welcome to the Liquidity Services, Inc. Second Quarter of Fiscal Year 2025 Financial Results Conference Call. My name is Michelle, and I'll be your operator for today's call. Please note that this call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Michael Patrick, Liquidity Services Vice President and Controller.

Good morning. On the call today are Bill Engrick, our Chairman and Chief Executive Officer, and Jorge Celaya, our 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 management's views as of today, May 8, 2025, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, please have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of these measures with their most comparable GAAP measures as available. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we 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 our Chairman and CEO, Bill Engrich.

Good morning, and welcome to our Q2 earnings call. I'll review our Q2 performance and the progress of our business segments. And next, Jorge Celaya will provide more details on the quarter. Our team made significant progress towards our strategic, financial, and operational goals this past quarter, notwithstanding emerging economic uncertainty. We expanded our market presence and service offerings and are moving closer to our midterm goal of $2 billion of annual GMV, with our current GMV annualized run rate of $1.67 billion. We are growing our volumes, buyer base, and recovery rate in key high-value categories such as construction, equipment, trucks, vehicles, and consumer return goods. During Q2, we set new records in the number of sellers, assets listed, and bidder participation in these categories. We also continue to drive adoption of our asset-light services in all segments and are transacting approximately 80% or more of our total GMV under the consignment pricing model. Despite significant investment in our business expansion and product roadmap initiatives, we are also meeting our goal of a 20% EBITDA margin as a percentage of direct profit or net revenue. We generated over $21 million of operating cash flow during Q2 and have a debt-free balance sheet with $149 million of cash to execute both our organic and M&A growth strategies. Now let's take a closer look at each segment. Our GovDeals segment continues to successfully serve customers in both government and government-adjacent markets in the sale of used equipment, vehicles, and other commercial assets. Through this growth process, we have expanded our GovDeals target addressable market to an estimated $5.4 billion. During Q2, GovDeals attracted new, higher volume clients who previously relied on full-service auctioneers by implementing our innovative hybrid solutions that leverage our scalable online marketplaces. Recent examples of these wins include New York City, Buffalo, New York, Boston, Sacramento, California, Fairfax County, Virginia, and Amarillo, Texas. GovDeals has also driven consistent account acquisition and expansion of existing accounts, which has resulted in 12% organic growth in the number of assets listed in the first half of fiscal year 25 on our GovDeals platform. Vehicle volumes have also grown steadily year over year. Noting, however, that given the current tariff policies, it is likely that vehicle supply chains will undergo some disruption in the future and used vehicle prices are likely to rise at some point during this period. Our CAG segment posted solid results during Q2 with double-digit organic growth in GMV. The breadth of our CAG marketplace was on display during Q2 as we completed transactions in the US, the UK, India, Poland, Sweden, and China across a variety of verticals, including energy, biopharma, consumer packaged goods, and industrial machinery. Our growing CAG heavy equipment category continued its rapid growth, setting records for the number of unique sellers repeat sellers, GMV, and completed transactions during Q2. Buyers continue to be attracted to the savings, immediacy, and convenience offered in our used equipment marketplaces. During Q2, we enjoyed record buyer participation in our CAG segment as the number of auction participants grew 95% and 70% year-over-year respectively and our heavy equipment and CAG industrial verticals during Q2. Our RSCG segment expanded its relationships with sellers across categories and geographies to drive 29% year-over-year growth in GMB during Q2. Margins were roughly flat year-over-year due to a weakening consumer, higher inbound purchase rates, and logistics costs. our market share gains have been fueled by the high quality and reliability of our solution, which ensures that our retail clients benefit financially and operationally from our services. In fact, we are now offering our sell-in-place software solution to some of the largest e-commerce players outside of the U.S. to manage and sell their return goods on our platforms. demonstrating how our investment in easy-to-use listing tools and multilingual capabilities is paying off. Our observation is that the current economic climate is putting pressure on many players in the retail liquidation industry, which has historically led to greater levels of insolvency or bankruptcy of service providers, which has adverse operational and financial impacts on retailers. Also, it is unclear whether cash-strapped consumers are prepared to absorb higher costs of goods due to new tariff policies. Against this backdrop, liquidity services. offers the retail industry a safe harbor for our clients and buyers by providing consistent, reliable, secure, and scalable performance. In particular, our multi-channel buyer base and value-added logistics services have been critical to assisting our retail clients in navigating this uncertain economic environment. Finally, our Machinio and our newly launched software solutions business each continue to add customer value by enhancing our service offerings and expanding our market reach. Maschineo is strengthening its value proposition by integrating e-commerce, payment, shipping services, and new email marketing campaign tools to enable used equipment sellers to more efficiently manage their sales. We continue to invest in platform improvements and have increased our capacity to innovate through our software solutions business, which includes our acquired auction software business and software development team. Collectively, our product teams are hard at work introducing new features in the front end and back end of our marketplace platform, including AI-assisted asset description tools and asset alerts, white label client landing pages, text notifications during the bid process, and mobile responsive asset upload templates. As we've noticed, clients across all industries are grappling with the effects of emerging tariffs on their supply chains, which could impact the timing and volume of asset sales, including retail goods and used vehicles. However, our market-leading solutions help our seller clients and buyers respond to economic uncertainty and evolving supply chains by offering flexible and liquid marketplaces to transact any type of equipment or asset in all regions of the globe. With our strong financial foundation and strategic focus, we are very well positioned to seize emerging opportunities to drive long-term growth even in uncertain times. I'll now turn it over to Jorge for more details on the quarter.