Liquidity Services, Inc.

Welcome to the Liquidity Services Third Quarter of Fiscal Year 2026 Financial Results Conference Call. My name is Shannon, 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. I will now turn the call over to Michael Patrick, Liquidity Services Vice President and Controller.

Good morning. On the call today are Bill Angrick, 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, August 6, 2026, 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 Angrick.

Thanks, Michael. Good morning and welcome to our earnings call. Our strong Q3 results reflect the continued success execution of Arise Strategy, which focuses on four priorities, maximizing recovery for sellers, increasing transaction volume, expanding value-added services, and leveraging technology to drive operating efficiency. Together, these initiatives are producing stronger financial performance as we confidently march towards our $2 billion annual GMV target, and reinforce our leadership position in the $100 billion circular economy. Our strategy is to bring measurable results. In Q3, GAAP diluted earnings per share of 32 cents was up 39% year-over-year, driven by GMB growth of 10% year-over-year to $453 million, GAAP revenue growth of 8% to $129.6 million, direct profit growth of 17% year-over-year to $3.8 million, and adjusted EBITDA growth to $22 million. Our Rule of 40 score improved to 51%, up from 42% a year ago. while cash and short-term investments increased to $231 million. These results represent our 10th consecutive quarter of year-over-year EBITDA growth. Our retail segment, GMB, reached a record $121.6 million, increasing 19% year-over-year. Growth was driven by expanding consignment relationships and improved recovery rates across major programs. Our managed direct-to-consumer consignment business nearly doubled from the prior year and our international clients continued their strong growth trajectory. These programs demonstrate how our flexible service offerings help large retailers recover more value from surplus inventory while improving speed, transparency and sustainability. Finally, our RetailRust GMV grew sequentially by 50%, reflecting continued progress, attracting demand to our proprietary D2C online auction platform. Our GovDeal segment achieved record GMV of $274 million, up 9% year-over-year, and we set a new quarterly record for unique sellers, marking the seventh consecutive quarter of seller growth. Public sector clients continue to rely on our GovDeals platform to maximize proceeds from surplus assets, as demonstrated by several notable transactions during the quarter, including a $7.7 million State Department of Transportation heavy equipment sale, a $2.5 million generator auction for a federal client, and a $2.6 million Canadian transaction. Our strong record of performance has allowed us to win increasingly lucrative engagements For example, Miami-Dade County is selling their landmark 28-story, approximately 265,000 square foot county courthouse in the heart of downtown Miami on our GovDeals marketplace. GovDeals also established new records for bidder and seller engagement, including the most unique bidders in a single month and most assets available for sale on a single day. Our buyer acquisition and engagement initiatives continue to produce strong results. During the quarter, GovDeals buyer registrations increased 23%, new bidders increased 42%, and conversion rates improved 35% even as marketing spend declined. These gains reflect investments in AI-enabled marketing, personalization, buyer education, and improved marketplace experiences. These milestones illustrate the growing network effects of our platform and our ability to connect more buyers with more inventory than ever before. Our capital assets group segment continued to demonstrate the strength and resilience of its marketplace platform during Q3. While quarterly results were impacted by the timing of several large projects, CAG delivered another quarter of year-over-year direct profit growth, expanded its client base, improved pricing performance, and strengthened its pipeline entering the fourth quarter. Importantly, these large project delays during Q3 reflect timing issues rather than project losses and have strengthened our outlook for upcoming quarters. During Q3, CAG generated $57.5 million of GMV and $9.6 million of direct profit. While GMV declined 1%, year-over-year primarily due to project timing and lower volumes in EMEA, APAC, and selected North American industrial markets, direct profit increased 13% year-over-year as a result of stronger pricing and mix. One of the most encouraging indicators during Q3 was our continued improvement in CAG unit economics. CAG's take rate increased 270 basis points from a year ago, reflecting higher margin consignment projects and Strong Execution across our heavy equipment fleet and industrial verticals. This helped offset the impact of lower transaction volume and enabled direct profit growth despite a roughly full . New CAG account activity remained healthy with 175 new accounts signed during Q3, including a growing mix of recurring and annuity-style relationships. CAG secured several notable customer engagements during the quarter that reinforce our leadership position across industrial, energy, biopharma, and manufacturing sectors. Recent wins reflect our competitive advantages, including the largest buyer base within these industrial verticals, our global execution capabilities, our differentiated sell-in-place offering for heavy equipment fleet owners, and our asset zone redeployment platform. On the buyer side, Demand for CAG industrial used equipment, energy assets, and heavy equipment remained robust, particularly in North America, where bidder participation across auction events continued at elevated levels during Q3. Our machinio business also delivered strong momentum with machinio systems and ARR increasing 26% year-over-year and a vertical serve up by machinio