Q4 2019 Earnings Call

Earning conference call at this time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during that portion you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you required any further assistance. Please press star in cereal.

No one likes to the time to conference over to your Speaker today, Ms., Julie Davis Senior director of Investor Relations.

Thank you Carmen Hello, and welcome to our fourth quarter and fiscal year 2019 financial results Conference call.

Joining us today, our billing, Greg, our chairman and Chief Executive Officer, and Jorge fly out our executive Vice President and Chief Financial Officer, we will be available for questions. After our prepared remarks.

The following discussion a responses to your questions reflect management's views as of today December 10th 2019 I 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 then our filings with the FCC, including our most recent annual report on Form 10-K .

Oh, you listened to today's call. We encourage you to have our press release, some kind of you which includes our financial results as well as metrics and commentary on the quarter.

During this call, we'll discuss certain non-GAAP financial measures and our press release, and our filings or that you see each of which is posted on our website you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these matters with comparable GAAP measures.

We also use certain supplemental operating data as a measure of certain components of operating performance, which we also believe it's 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.

Time, I'd like to turn the presentation over to our CEO Bill and Greg.

Thank you Julie good morning, and welcome to our Q4 earnings call I'll review, our Q4 performance and provide an update on key strategic initiatives next already so I will provide more details.

On the quarter.

Outlook for Q1, the school 20.

For Q4 results reflect continued execution of our rights growth strategy with solid results.

Including our sixth consecutive quarter of organic GMB growth.

Second consecutive quarter GAAP revenue growth.

And our eighth consecutive quarter of non-GAAP adjusted EBITDA improvement.

Our strategy continues to deliver more efficient operations.

For effective asset promotion, which drives higher recovery.

Hey, broader choice of seller services.

And then increase bloodbath sets from sellers and or.

Retail supply chain and cut deals segments.

Our adjusted EBITDA improved 60% over the prior year in Q4, plus the my team and we had positive operating cash flow.

In Q4 fiscal 19, reflecting.

Blend growth.

And continued benefits from operational efficiencies enhanced marketing and organizational realignment efforts.

Further our.

Our fiscal 2019 bottom line results marked a 20.3 million dollar improvement in adjusted EBITDA over the past two years.

Stepping back at looking at the full year fiscal 19.

Our objective was to resume organic growth.

While investing in our products services and people.

To sustain market leadership.

We accomplish these objectives.

For the full year fiscal 2019, we grew TMB by $14 million to 640 million.

Despite the loss of the duty scrap contract in the full unwind a part D. A big programs.

Of note fiscal 2019 was the first year of consolidated JMP and GAAP revenue growth.

In six years.

The full year 2019.

We increased.

Adjusted EBITDA by $6.1 billion, driven by top line growth in all segments.

And lower sales and operations expenses.

Partly offset by the wind down of our de contracts.

Our cash position has been relatively stable.

$66 million at fiscal year end 2018, compared to $69 million at the end of Q1 fiscal 18.

We continue to have zero long term debt.

We are encouraged by this product positive trajectory.

And remain committed to continuous improvement in our product offering.

And our operations.

Next we'll take a look at highlights.

Our business segments.

Dnbi grew 18% year over year in our retail supply chain group segment.

Driven by higher volumes within existing and new accounts in both the U.S. and Canada.

And strong buyer participation.

And our retail online marketplace.

We continue to expand our business with retailers and manufacturers, helping them reduced supply chain costs and drive maximum financial recovery.

With our core marketplace services and returns management offerings.

We also continue to expand our self directed and scanning sell outs.

More customers, leveraging our data and software to make smart decisions to quickly dispose though.

Returned good for maximum value.

G.M.D. it in these areas grew over 40% year over year in Q4.

We've also launched new capabilities to manage and so.

Mobile devices.

Our Oems retailers and service fire service providers.

We're excited about this new category.

Our Gulf deals segment JMP.

Grew 4% year over year in the quarter. Despite a strong comparative period in Q4 fiscal 18, which includes a very large individual asset sales.

However, we continued to expand our market share and signed over through 300, new.

Agencies, this quarter, including wins in Oakland, California.

Corpus Christi, Texas.

And the Phoenix Mesa Gateway Airport authority.

Our consistent growth.

In the government markets reflects the values servicing convenience that our Gov deals solution provides.

From an agency sellers across a wide variety of assets.

Our CAG segment GMB declined 15% from the prior year period due to the wind down.

Of our scrap contract with the U.S. Department of defense.

And our softness.

And international.

And energy vertical markets.

This was offset by.

Hi strength in the Americas across her biopharma.

And industrial machinery verticals.

Our ecommerce solution continues to resonate with industrial sellers.

We are gaining adoption and our clients use of our self directed solutions.

Which leverage our technology platform.

Growing buyer base.

Data analytics.

We also continued to advance our product roadmap during Q4.

Based on customer feedback, we launched our machinery host storefront product.

Which provide SMB customers a modern mobile first storefront.

Market the used equipment with seamless integration with our online classify its offering.

And our online sales marketplaces.

We also launched the beta testing version.

Of our new aggregated marketplace and will be deploying new features continuously during fiscal year 20.

As we test and prioritize functionality based on customer feedback.

Our new unified marketplace will make it easy for buyers to find and buy every asset available for sale.

Using a powerful.

Marketing technology stack.

Fiscal year 20 will be a year of continued innovation and growth as we put more services and power into the hands.

Our sellers and buyers to create value.

Moving forward in fiscal 20, we have prioritized continued investment in our marketing ex DAC and sales organization.

To meet our rise objectives at the expense of maximizing short term.

Profitability.

In order to enhance our competitive position and growth.

Overtime.

Well, our Q1 guidance reflects general softness.

Our CAG international and energy vertical.

Versus the prior year period, we expect to continue our growth trend.

Well there for the full year fiscal 2020.

Due to the markets response.

<unk> rise strategy and offerings.

Our focus on investments during fiscal year 2020 will be guided by the following strategic objectives.

One.

Driving higher net recovery through technology and innovation that improves.

By or experience.

Two.

Increasing volume by delivering flexible service offerings in pricing models, the asset categories with attractive addressable markets.

Three.

Growing services with recurring revenue characteristics that leverage our technology platform domain expertise.

Data and marketplace channels.

And finally for improving operating expense leverage by controlling costs and through technology and innovation that increases productivity.

In closing liquidity services remains committed to driving innovation and significant value creation for customers.

And our shareholders as we execute on our long term right strategy.

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

Thank you Bill good morning.

First I will comment on select fourth quarter in fiscal year 2019 results.

We finished the quarter of fiscal year 2019 within guidance range of GMP, adjusted EBITDA and adjusted EPS.

GAAP net loss and GAAP EPS were below the range, reflecting the earn out from machining based on their solid business performance.

Our fourth quarter results reflected the ongoing execution of arrives growth strategy.

As compared to the fourth quarter 2018, DMV and adjusted EBITDA were up and continued to reflect positive trends in our rscg and don't deal segments.

Offset by the wind down period of the deal the scrap contract within the quarter and the Lumpiness in our commercial business within the Cogs segments.

Comparing to the fourth quarter of 2018, GMB improved 2% in revenue was up 12%.

Fourth quarter GAAP net loss was higher reflecting onetime expenses, while non-GAAP adjusted EBITDA results improved year over year for the eighth consecutive quarter.

non-GAAP adjusted net loss improved $2.1 billion in the fourth quarter over the prior year.

In the fourth quarter, we reported DMV of $157.8 million.

Deals GMB was up 4%.

Fourth quarter of fiscal year 2018, driven by the additional sales volume from existing and new sellers.

Retail supply chain group GMB was up 18% from a year ago on an increase in product flows from existing client accounts.

New business development efforts and adoption of solar solutions and new service offerings.

Results.

Partly offset by a 15% year over year decrease in our tag segment on the decline in the deal these scrap contract activities and lower card consignment activity in the energy vertical pipe market.

We reported fourth quarter fiscal year 2019 revenue of $58.8 million.

Nope deals revenue increased 8% RCG increased 15% and our card segment increased 2% compared to the fourth quarter fiscal year 2018.

Excluding the deal the contracts had segment revenue was up 21% compared to the same quarter last year.

Our fiscal year 2019, GAAP net loss was $5.2 million compared to a loss of $1 million in the fourth quarter fiscal year 18 impacted by business restructuring expenses changes in the fair value adjustment in fiscal year 2019 to the acquisition earn out.

And the benefits from the New packs act in fiscal year 2018.

Adjusted net loss was $2.5 billion, an improvement from a loss of $4.6 million last year.

And finally, our fourth quarter adjusted EBITDA was negative $800000, a 1.1 million dollar improvement from a loss of $1.9 billion in the prior year fourth quarter.

This improvement was driven by topline growth in our Siggi and Gulf deal cycles restructuring the corporate functions during 2019 lower expenses due to the closure of our indirect business and were offset by a 12% increase in sales and marketing expenses.

Turning to the fiscal year 2019, full year results or performance reflected solid DMP growth in our Gulf deals at RCG segments, and modest GMB growth and our card business when excluding the deal the surplus and scrap contracts and reflecting the trend in the energy sector.

Our fiscal year, 2019, GMB was $639.9 million up $13.5 million or 2% compared to fiscal year 2018 as growth in our GAAP yield and RCG segments up 7%, a 19% respectively.

I was mostly offset by the impact from the wind down of our view of the surplus and scrap contracts and higher activity from tied consignment deals last year.

We reported fiscal year, 2019 revenue of $226.5 million up $2 million or.

1% from the prior year, despite wind down periods in both our view of the surplus and scrap contracts in our card segment last year.

Excluding the deal the contracts.

Total fiscal year 2019, GMB was up 8% revenue was up 23% compared to the prior year.

For the fiscal year 2019, GAAP net loss was $19.3 million versus a loss of $11.6 million in the prior year, adjusted EBITDA improved $6.1 million to a negative $1.2 million.

Adjusted net loss improved $8.7 billion over the prior year, one negative $7.4 million.

We continue to have a debt free balance sheet at September Thirtyth 2019, we had a cash and short term investment balance of.

$66.5 billion.

Looking ahead to fiscal year 2020.

We will continue to focus on growing our commercial and municipal government marketplaces growing at expanding our self service offerings for commercial sellers.

An incremental enhancements and buyer adoption of our new aggregated marketplace.

We remain focused on executing our rise strategy, which we believe.

We will position us to better serve our sellers and buyers through flexible service offerings and enhance fire experience a new sellers solutions.

Our Q1 fiscal year 2020, comparative results will be impacted by the episodic nature in our Cogs segment.

As reflected in the strong first quarter fiscal year 2019 comparison period.

We expect an improved trends in fiscal year 2020 based on the pipeline activity, we see the have seen during the quarter.

Year over year, our first quarter outlook comparison reflects continued growth in our municipal government business, we expect to see improvements in seller and buyer participation in our RCG segment as we enhance our new service offerings, such as scattered sell out and new mobility served.

It's offerings.

While we are making overall progress in our tax segment, where they refined go to market sales strategy, adding on our new self service offering.

We expect lumpiness from potential one off sales of how hard to predict timelines.

Management's guidance for the next fiscal quarter is as follows.

We expect GMB for fiscal <unk>.

Year first quarter of 2020 to range from $145 million $265 million.

GAAP net loss in its is expected for fiscal year, 2021st quarter in the range of negative 5.5 million to negative 2.9 billion with a corresponding GAAP loss per share for Q1 of 2020, ranging from negative 16 cents to a negative eight cents per share.

We estimate non-GAAP adjusted EBITDA for Q1 of 20 point.

To range from a negative 2.5 million to a negative $500000.

non-GAAP adjusted loss per share is estimated for Q1 2020 in the range of negative 14 cents to negative six cents per share.

This guidance assumes that we have the looted weighted average shares outstanding for the quarter of approximately 33.9.

Million shares.

We will now take your questions.

Thank you ladies and gentlemen, if you have a question at this time just start and then number one key Joe touched on telephone.

To withdraw your question please spend stepanski.

Again, if you have a question just press Star then one.

And we have a question from the line of Gary Prestopino with Barrington Research. Please go ahead.

Hi, good morning, everyone.

Could you maybe are you seeing anything competitively in gcgs yields.

In the market.

In terms of that could be signing your growth a little bit. There I think this is the second consecutive quarter, where we haven't had that kind of teens growth that we've had in the first over the last couple of quarters.

No I think the competitive landscape.

Continues to offer the various.

In House solutions.

Certainly theres different types and varieties of marketplace solutions for companies.

I think one of the fundamental things we did Gary in fiscal 19 is we realigned organization and you may recall that.

Previously in fiscal 19 are acting CEO was also the president of the Gulf deals segment.

We brought on a new.

CTO.

Gentlemen names, Steve Weiss curvature, we're very excited about it came over from Gamestop and assume that role.

Actively in the September timeframe.

So really at the tail end of fiscal 19.

Additionally, we organized our sales and go to market organization around a chief commercial officer role.

And that roll occupied by JV Dot is undoubtedly going to make a huge difference not just for GVE deals, but for everything we're doing and I think that organizational realignment would be at one factor.

And Doug deals performance during fiscal 19.

So with this new individual coming in what what did you change that.

Besides the fact that you had a tough comparison what has changed in the go to market strategy that would.

Cause the GMB too you know not emulate that growth that we are well what I said is that during fiscal 19, you had the person overseeing effectively the sales organization also occupying the CIO role so that infusion of focus and attention.

You know important for continuity the time, it's not ideal for driving maximum year over year growth.

And the sales function and what I'm, saying is that the new role created is.

Fully dedicated to managing the sales organizations sales process, we had a number of open positions that were on filled in the club deals segment actually that are now build and I think when you look at the growth opportunity continue to be very optimistic both the us in Canada.

A very receptive to what we're doing and we're seeing that.

Growth is picking up as we move into fiscal 2000.

Okay, and then could you would you categorize fiscal 20 is another year of investment and what you're doing in the sale side in the marketing side and then maybe obviously you're investing in sales you're adding to your Salesforce is that correct well what do you also doing on the marketing side that we're looking at.

Higher level investment in those categories versus where we had been.

Well a couple of things.

Clearly product in the platform or the focus of our investment efforts and we will continue to to make aggressive investments in those areas because we feel like there is the market demand for the service offering we've taken many fortune 500 accounts, where we were getting a sliver of their their volume and expanding.

The volume, we can manage and sell because we're offering them technology enabled self directed tools and.

Analytics tools, allowing their organizations to.

To be more in control of the process. So we're very excited by that.

In terms of the sales organization.

Yes, we will be adding headcount to both the commercial and the government.

Verticals. These these could be.

Offering.

Both fully managed support for clients to ask us to be involved in.

The asset management and project management functions, but also.

Inside sales teams that will be enabling sellers to access the tools and will help set them up and train that will be a lighter touch add we believe that these lighter touch lower fee offerings have a role in the marketplace that people are hungry for those types of options and are excited to have a sale.

As organization that geared to providing that type of.

Support.

In terms of the marketing Tech stack I think are two aspects of that one is debt.

The buyer facing side, creating more.

Automated.

Algorithmic tools to match product with buyers based on their observed behavior.

That sort of machine driven approach to asset promotion and asset marketing as a.

The best practice and one that will.

Increase our recovery rates.

We will do so leveraging large store data that we have on our own transactions and third party data sets.

And our marketing team has continued to build that capability heading into the new year, we're testing that capability.

In a variety of customer.

Beta sites and are encouraged by the progress, we're making overtime. This learning machine that becomes.

More and more specific to how buyers click and view and bid and by will enable high recovery for sellers, enabling us to support further volume from our sellers.

Those two areas sales in the marketing Tech stack do require.

Support from our Tech team and there is.

Group of development.

Roles that will build those things out and you know, we're we've moved Gary from more of a waterfall.

Deployment methodology to an agile deployment algae. So we're now at a cadence of leasing features every two weeks and that allows us to be much more.

Acutely line with what we're hearing from our customers and prioritization of those features and tying those two where we can make the most progress with customers and winning business is is a key part of the 2020 strategy.

So you will be simplifying or tech stack, enhancing our marketing technologies and capabilities and then growing number of people delivering the message to the clients going into the prospects and we have a great story to tell and we're excited that capacity.

Okay. Thank you.

Thank you, ladies and gentlemen, if I remind or if you have a question or comment just press star then one to getting maciel.

All right we have a question from Gary Prestopino Barrington Research. Please go ahead.

Okay I just had two more follow ups and then I'll jump off in terms of the scrap contract has that been totally wound down and thats not part of going to be.

Not going to have any GMB effect in fiscal 2000.

That is that is right the fiscal wind down the wind down of the scrap contract will not impact fiscal 20, though there will be a year over year.

Drag on comparative basis, but we are out of that contract and fully removed from the legacy video the business.

Okay. When you say in a drag is there there's a drag on GMB, but is that a big drag on profitability Bill.

No we realigned.

To remove cost us direct costs associated with that contract.

Okay, and then also on where I think on that you were going through your narrative you said the self directed business was up 40% was that just in the retail categories that across the board for the whole company.

That was that's a across the board.

Okay can you can you maybe share with us what percentage of your your businesses now self directed versus where we havent disclosed we haven't disclosed or broken that out it's not a business segment per se, but what it means is that an every conversation we're now able to offer a continuum of such.

Sure so that helps us capture volumes that would be circumventing.

What we do.

I believe at our Investor deck, Jorge and her team have.

Added some delta zone GMP mix by.

Consignment versus purchase and then within consignment. The portion that is self directed and again, where the world is going we believe is clients want to have control over various aspects of the service and I would tell you.

More than half of our overall GMP.

Is now in a self directed.

Business model for us.

Okay. That's very helpful. I mean, if you look at your the metrics that you're generating you look at.

You put.

Gross profit GM revenue to GMB gross profit revenue gross profit to GMB Q4, most of those metrics are up pretty dramatically.

Yes, exactly when you look at our business, you're going to see a higher margin business over time as a percent of ITG and.

Gross profit measurements.

Exactly yes, I'm sorry go ahead.

Yes, and one other things said two things to keep in mind, one is on one hand.

Tried to indicate that it's a bit lumpy. So if we have a particular principal deal or purchase deal.

In the CAD segment.

But then you get a bit of a mix issue, but generally speaking the trend as we expand our self directed solutions within the consignment business.

That will.

We create that volume in that leverage that is a higher gross profit margin a higher overall margin business.

Yes that for every dollar of GMB generates obviously less revenue.

So it's important as you have noted there that we need to keep a very close eye on not just revenue, but GMB and the margins and see the relationship as they go over time any one quarter is a little hard to gauge, but I'll, let you get into the weeds, but generally speaking the.

Trend is.

We may have a little tempered growth on the revenue as we scale up more and more self directed solutions, but the margin more than offsets that.

That situation.

Okay. Thanks, a lot.

Thank you and I'm not showing any further questions and Nicky I would like to turn the call back to Julie Davis for any final remarks.

Thank you thanks, everyone for your participation on today's call. If you have additional follow up questions. Please reach out to me. This now concludes our call. Thank you and have a nice afternoon.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.