Q3 2020 Liquidity Services Inc Earnings Call
To the Q3 2020 liquidity services conference call. My name is carried out would be your operator for today's call. At this time all participants are now listen only mode.
We will conduct a question answer session. During the question answer session. If you have a question. Please press Star then one and you touched on so I would not you know call over to Julie Davis. So you may begin.
Thank you Karen Hello, and welcome to our third quarter fiscal year, Tony Tony Financial results Conference call joining us today, our bellanger, our chairman and Chief Executive Officer, and Jorge for while our executive Vice President and Chief Financial Officer, we will be available for questions. After our prepared remark.
The following discussion or responses to your question reflect management's views as of today August 2020, 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 in our fine CCGT, including our most recent annual report on form 10-K.
As you listened to today's call. We encourage you to have our press release I'm trying to view, which includes our financial results as well as metrics in commentary on the quarter.
During this call, we will discuss certain non-GAAP financial measure and our press release and our filings with the FCC. He took what you posted on our website you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these matters what 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.
It should not be considered a substitute for or superior to GAAP results.
At this time I'd like to turn the presentation over to our CEO Bill and Greg.
Good Julie good morning, and welcome to our Q3 earnings call.
I'll review, our Q3 performance and provide an update on the market environment.
A key strategic initiatives next Tory supplier will provide more details on the quarter.
We're very proud of our team's efforts during the June quarter to collaborate and quickly adapt.
During one of the most volatile periods at our history Whopper continued to deliver value to our buyers and sellers in a safe and effective manner.
We are witnessing a great shift of consumer behavior during the pandemic away from traditional solutions digital solutions years of online adoption at than compressed into a few months.
Without question the investments we've made.
Past few years at all my marketplace platform and technology infrastructure have positioned liquidity services extremely well to meet the needs of customers and they post and then make world.
Sellers and buyers are largely seeking efficient no contact digital solutions that are stable reliable and scalable.
We are increasing our market share as sellers embrace our technology and services.
That result in strong execution safety.
And convenience.
And this context retailers manufacturers and government agencies embraced our safe and proven solutions to conduct.
Commerce during Q3.
And foreshadows essential role liquidity services will have an evolving economy in E commerce space.
We are fielding more inbound inquiries across all of our segments.
Because of our unique capabilities.
Notwithstanding the volatile environment, we delivered strong results during the June quarter.
Our topline results were primarily impacted by the closing of the economy in the month of April.
And then we saw steady increases in the remainder of the quarter.
As both government agencies and corporations began to welcome employees back the physical locations and sought to monetize assets.
GMB and our retail segment grew 14%.
Year over year GMP in our AG segment declined 18%.
And GMB and our gut feel segment declined 36%.
Compared to the prior year, reflecting the various degrees that facility closures had on our business segments.
Our machine is segment revenue increased 23%.
Year over year, driven by our cost effective lead generation solutions for equipment sellers, many of whom are small business customers looking to stretch their marketing budgets.
In an uncertain economic environment.
Our bottom line results during the quarter benefited from our previous organizational realignment decentralize key business functions.
Our historical investments to upgrade our E commerce.
Digital marketing and back office services.
And the actions we took in April to conserve our resources.
These initiatives together help drive positive GAAP net income GAAP, EPS and adjusted EBITDA as well as strong cash flow generation.
These results reflect the dedication and ingenuity of our entire team to consistently deliver outstanding service and solutions in the reverse supply chain, regardless of the circumstances.
During Q3.
We continue to enhance our new consolidated marketplace, all surplus dot com, which now features nearly 13 assets 13000 assets for sale in key categories such as.
Pharma construction consumer goods energy industrial equipment and transportation.
We have added new self service features that enable a low touch solution to sell assets online, which eliminates the need for lied in person exchanges.
In turn our marketplace platform provides buyers around the globe.
Need access to the Inventorying equipment, they required to meet their business needs.
Our investments in machine, driven recommendation tools filtered navigation and an improved mobile experience.
All resulted in higher higher participation and higher recovery for sellers.
Along with a better experience for our buyers.
We've also witnessed that our platform is sparking the creation of new businesses from wells skilled individuals.
We're able to conveniently buy and sell assets throughout the world using our marketplace platform.
For example, our access to buyers and Asian early parts of the pandemic was particularly attracted to sellers as these buyers have more appetite for many asset classes that buyers in the U.S.
Compared to Q2.
Of this year, our increase promotion of all surplus has resulted in a 148% increase and by registrations, a 119% increase in traffic a 161% increasing easy unique visitors and a 65% increase in direct transactions on the all surplus marketplace.
We continue to see.
Early adoption of this new marketplace and its self service model as sellers have an increase desire to shift to primarily cloud based business processes and services.
We believe our self service solution over time will be an attractive growth opportunity.
This is sellers and buyers continue to adapt to social assistance in guidelines due to the pandemic.
Looking forward it is very difficult for us to forecast how public policy actions in the us and abroad will evolve.
And their impact on economic activity and business and government facility closures and thus we are not providing Q4 financial guidance.
However, as the economy in.
Facilities have reopened.
We have seen an increase in seller activity on our marketplace platform.
As these organizations seek to monetize assets safely and reliably.
Our retail segment expects to continue to support.
Online and Omnichannel retailer needs through both our self directed and are fully managed marketplace services.
We expect the secular growth of online sales will require retailers to address the re reverse supply chain needs and a more comprehensive way.
And we are well positioned to provide the marketplace and logistics solutions needed to address any accumulation of returns were excess inventory caused by the pandemic or during the normal business cycle.
And our CAG segment, while retail facility closures and travel restrictions are a headwind in the short term, we believe that need for liquidity from our industrial sellers and the demand for value price equipment from our buyers will create.
Future positive conditions.
We have a longstanding market maker reputation for selling high value equipment globally across numerous industries and we'll continue to support the needs of our traditional seller base.
Our our new expanded self directed low touch solution on all surplus.
We will also provide and support the long term growth of our tech business in new areas, such as construction and transportation.
Our Gulf deal segment has experienced improving momentum as governments have relaxed restrictions and there's a strong desire to operate in a more efficient no contact environment with respect to the management and sale.
Of equipment.
Got deals proven track record and efficient business model is ideally positioned us to solve the needs of public sector agency clients in the current environment.
In closing, we are well positioned to weather the global impacts of the pandemic.
And the strength of our online platform and the in June ingenuity of our team will enable us to adapt and solve.
The evolving challenges of our sellers and buyers across the industries we serve.
Thank you ill now turn it over to Jorge for more details on the quarter.
Good morning, and thank you Bill.
Our third quarter of fiscal year 2020 results were strong, especially in light of the volatile environment created by the Cobot 19, pandemics with business disruption and ongoing economic uncertainty.
Our third quarter performance showed improving topline trends.
The quarter unfolded from the loads in April as business and government began to reopen.
We're pleased with the results of our ability to manage swiftly and with purpose through such a challenging business environment.
Combined with our focus on helping our customers also execute on their needs.
Resulting in an improving topline as the quarter progress.
We are most pleased with the positive reception in the market through our platform services.
And our ability to offer the required support the customers.
Our service offerings during this pent up.
We generated positive results that include GAAP net income Gotti GAAP EPS.
And solid adjusted EBITDA.
Our third quarter fiscal year 2020 resulted in $130.1 million of DMB.
Revenue of $47.7 million GAAP net income of $200000 adjusted EBITDA of $3.7 million.
As compared to the third quarter fiscal year 2019.
And reflecting the impact of cobot 19 on our customers. This year, our GMB was down 23% than revenue was down 16%.
These results reflected one.
Spec exceptionally low activity in our Cogs and got deals segment as a result of the covert 19 pandemic government ordered closures and global travel restrictions.
Activity in both segments increased in May and again in June as businesses and government facility began to reopen.
Two.
Growth in GMB and revenue in our retail rscg segments.
Driven by growing volumes within existing online seller account.
And strong buyer demand and central good.
Despite impacts in April as traditional retailers were initially ports close and online retailers focus resources on providing essential goods to consumers during the onset of the pandemic.
Three continued growth in our machine tool business, despite cautionary spending by clients.
And for the conclusion of our deal these crop contract in our tax segments.
Excluding the conclusion of our deal these crop contract last year.
Consolidated liquidity services GMB was down 20% in revenue down 9%.
For the third quarter fiscal year 2020 compared to last year.
Solid performance in difficult pandemic conditions.
More specifically, our retail Rscg segment was up 14% on GMB and up 7% of revenue.
Our governor you'll segment was down 36% on DMV and 35% of revenue and our tax they have dnbi was around 28%.
And down 57% on revenue.
Excluding the deal these crop contract the CAG segment GMB was down 18%.
And revenue down 38%.
While machining show was up 23% in revenue.
As compared to the third quarter fiscal year 2019.
Our GAAP net income was $200000 or an improvement of $4.9 billion.
Our adjusted EBITDA was $3.7 million improving by $3.5 million.
We have a debt free balance sheet and ended the quarter with $72.7 million in cash up $20.9 million compared to last quarter.
We do anticipate making payments in the upcoming fourth quarter related to some cash control measures taken in the third quarter and other deferred vendor payments.
We are closely monitoring the impact of the covert 19 pandemic on our economy, our sellers are buyers and on our own operation, while we continue to deliver our services reliably who existing and new customers.
As an update.
Actions, we took or announced during this last quarter.
What we recently returned a portion of furloughed employees back to full time status, mainly in our sales organization to address client demand.
Two we restored full base.
Hey for the full quarter to all on furloughed employees and three we are cautiously resuming marketing and some priority technology investments.
Looking ahead.
Notwithstanding the global uncertainty surrounding the cobot 19, pandemic and what would typically the seasonally down fourth quarter, we remain optimistic about our fourth quarter fiscal year 2020 based on the trends during the end of this last quarter.
And the trends within our current own are within our own marketplaces currently.
However, the likelihood magnitude and timing of these events across our segments.
Is difficult to predict given the current economic uncertainty on timing and overall impact of the global pent up.
We will therefore not provide quarterly guidance.
Thank you and we will now take your questions.
Yes.
Thank you we will now begin a question and answer session you'd be up a question. Please press Star then one and you touched on if you wish to be removed from the Q. Please press the pound side or the hash key it begin senior speakerphone.
You pick up the handset first before pressing the numbers once again a dip a question. Please press Star then one and you touched on phone.
Thank you Robert first question, Tom Colin Sebastian from Baird.
Great Good morning.
Looks like a good.
Ended the quarter guys.
I was hoping you could talk a little bit more about how you're promoting all surplus.
Benefits or changes in activity, you're seeing among buyers hopefully in an accretive way relative to what was happening on the legacy sites and then.
More broadly with the structural shift on the B to C E commerce side that we're clearly seeing.
Shouldn't that also drive higher levels of returns and liquidations curious if thats a dynamic that you that would you expect to see.
Particularly in the in the coming quarters. Thank you.
Thanks Collyn.
First point.
One that we didnt necessarily have a perfect crystal ball on was how would buyers respond.
And the historical downturn would they have the confidence to participate in these online b to b transactional marketplace is not just cars, but just broadly and what we've seen is.
Buyers embracing are all surplus platform.
We're driving record participation and in the lots that we sell that's a combination of.
The increasing supply available on the marketplace I mentioned, we're at almost 13000 assets for sale.
Highly desirable categories. This is property coming from Fortune 500, Fortune 1000 companies, while maintain property from public sector agencies.
We are providing transparency and convenience had.
Investments, we've made we have better navigation we have.
Mobile responsive design, we're seeing a big shift into mobile adoption.
We have machine driven recommendation tools now that allow buyers to see more relevant listings without having to declare their interest. So a combination of all of that has really improved our penetration of the buyer side and the buyers deal they have the capital in an interest.
Come into the marketplace. They are frugal buyers and we are perfectly positioned to serve their needs.
You comment about.
The secular shift and online retail as well as you know we've been positioned to benefit from that for many years and it just so happens that we're collapsing into one or two quarters, probably another three to five years of adoption of online shopping so without question our.
Marketplace technology, our services, our buyer base, our know how and our footprint make us very well positioned to benefit from the surge and online shopping and the volume of returns that would need to be.
Yeah attract managed and ultimately.
Monetized and reverse supply chain and Thats.
Reflected in how we see our share.
Increasing in the marketplace. We have then.
The most reliable solution at the reverse supply chain.
Since March and we're getting I think a lot of credit for that so we're we're very enthusiastic about not just the short term, but the long term trend in that regard.
I guess, maybe as a quick follow up.
Yes. It looks like of deals is has rebounded pretty quickly in June and maybe even the July and overall.
Talk about sort of where GMB growth or gmg levels are at exiting the quarter and through July give us a sense for what to expect in the coming quarter.
Yes, you know via recovery would be a fair statement I think the point is that as government facilities.
Reopened.
For a couple couple key themes one as they had to rethink how are they get the work done in a safe manner and an effective way.
Ed.
Our solution is ideally suited to the to the post pandemic environment because it doesn't require in person contact we have digital.
Native solutions for payment.
Or managing pickup in shipment.
And obviously, reaching a very large buyer base without physical.
Events or make ready.
Activity. So government agencies, both current accounts and new clients are really flocking to the type of solution that we offer and the trend lines have continued to be.
Strong since the end of the quarter.
Okay. Thanks, Bill I'll jump back in the Q.
And we do have a next question from Gary.
Peter from Barrington Research.
Good morning, everyone.
Field is most of your retail business on the return side ecommerce.
Yes. It is.
Okay, Okay, all right because it that's pretty good growth and that will explain some of that.
What's going on there I guess this one of the question that I would have is we're hearing.
Well first of all your quarter really benefited from an absolute decrease in.
Opex.
And some of the driven by the pandemic or driven by the pandemic actual youre going to restore some of that but coming out of this if you've been able to kind of ascertain that maybe in terms of this spending you can do a whole lot more without spending as much as you had been particularly on the technology side and the marketing side.
It's just kind of a rhetorical question, but we're hearing that from a lot of companies out there, we're able to do more with less.
I think theres no question that that.
Corporate America.
Society in general is looking for ways to be more productive and at our.
Testing historical assumptions on how they got things done and Thats something very that we've done at liquidity services first we've had to work in a largely a virtual environment.
Yet.
We're booking new business all over the world without ever physically going to see these these clients had right. The way that we're able to do that is because we have.
The tremendous track record, where known quantity with eight eight plus billion dollars are completed transactions, we can share all of that through webex through there.
Virtual exchange, we have a lot of that.
Past performance at our fingertips to share.
With our clients and they can go online and see our results every minute of everyday so.
We're well positioned to sell in a.
Virtual world add that is important and so it does test your assumption of why did we ever get on a plane that go Santa hotel.
The other area you see is all the trade shows are gone right and so we're filling that boyd through some creative marketing projects.
That allow us to bring best practice case studies to our clients.
But in in a different way.
We have never really been a heavy.
Real estate sort of business.
Our distribution centers in the retail supply chain are highly coveted because they provide.
With that extra space, where retailers like to channel returns.
And you can imagine if theres a backlog for a couple of quarters that really in pinches on.
On retailer or manufacturers space, so to that as an asset for us but outside of that we're a very asset light business. So we haven't had the really deal with a lot of storage for industrial or government.
I think the idea that.
Bob.
We are we're looking for automation.
And.
Digital tools to replace labor.
Sensitive activities, that's certainly a theme.
And while we did restore.
Many of the Furloughs had we had some temporary holiday Inn.
Some of our salaries, which has been restored.
I think we're going to.
Lead into continuing that automation working virtually.
And we're going to supplement.
Our investment in the area of sales and marketing principally to take these themes, we've discussed and make more people aware of our services honestly there are lot of people that.
Don't even know who we are yet which is an opportunity for us so we're going to invest in.
Seller facing marketing.
And our sales organization.
Okay good to hear.
And then just I just want to clear up something with bowl surplus I, maybe a little confused.
But all surpluses, let's all its cloud based system, it's mostly self service and that is a marketplace that aggregates all of your.
Marketplaces and in terms of.
I will point of entry for a seller or buyer or am I incorrect with that yes. It is envelopes all of the.
Government industrial assets, it's you will see really more at the high value equipment and retail inventory in all surplus. Although we have lots of consumer goods. There too. It is envelope being all of that plus direct to all surplus supply that's coming in from our new self service clients.
Add number of folks have discovered the importance of that.
In this current environment and that's something we continue to fuel.
For the growth of all surplus.
So I guess does it gets to the point, where you you would eventually start reporting GMB on all surplus or you or you still got a bucket. It three other areas well Weve base. All these are most as isn't.
I'm sorry go ahead.
Well all surplus is a brand not a business unit. So I think thats kind of core distinction. So our segments will continue as they are.
Okay, that's what I wanted to understand okay. Thank you.
And once again.
Next question Colin Sebastian from Baird.
Hey, Bill just a couple of follow ups.
On the fulfillment centers I just wonder what's the current status is there.
Any locations that we need to be concerned about from.
From a pandemic standpoint.
And then also related to capacity.
I know, you're moving more towards self serve but but if theres any capacity issue concerns you might have.
And then as stores reopened.
Side of the.
The ecommerce site in the business on the B to C side from the from supply.
Stores, reopener, where stores have reopened.
Do you see an upswing in merchandise liquidations from overstocks or whatever whatever from that part of the channel. Thank you.
Sure.
So called the important point for us on the fulfillment centers is that we are deemed as essential supply chain business and even in the depths of the shutdown. We continuously operated our fulfillment centers and that was a value in the service.
For buyers and sellers. So we've not had any issues relative to continuity of operations in our fulfillment centers and we have flex space that we can acquire to accommodate any surge and inventory or surge and the need for use of our storage and fulfillment centers.
Add we're going to continue to see I think demand for that.
As far as the.
Traditional brick and mortar stores reopening.
Certainly, there's a lot of overstock and seasonal merchandise that gets transacted.
A lot of that goes too.
Different channels.
The apparel market for example that you're going to see big players like TJ.
TJ Maxx do a lot in the merchandise.
Overstock apparel.
We are presented with opportunities and we're less interested in sort of one off.
Purchase of Overstock items, we're more interested and embedding ourself and recurring flows of.
Store returns or seasonal shelf pulls I mean shelf pools are something that fit in our wheelhouse and they would be deemed sort of overstock.
But.
We're not doing sort of chapter seven type of big size of inventory stores wind down and they go out of existence thats not our.
Our focus I do think the backdrop of what's happening and how clients are needing to started very focused spoken standing up omnichannel.
Yes.
An opportunity for us and we help solve needs for retailers that have to straddle.
Physical returns coming to their stores online sales add that can be a burden at the store level. So we take that burden off their hands by leveraging our.
Our fulfillment centers in our marketplace for clients can set up.
Direct to the marketplace self service programs and quickly turn that inventory and reduce the touches reduce the transportation costs to the overall.
Some value chain, if you will so thats an opportunity for us.
So on that on that.
I mean, how do you see.
Positioning on a come on a competitive basis.
Alternatives that might have more of a private.
Marketplace or private site approach to liquidations.
You see the wave it online liquidations are happening. It's changing are you happy with your offering any kind of broader thoughts on that would be would be yes, I think.
I think.
Some some of those solutions are more point solutions.
They'll help somebody move truckloads of somewhat homogeneous items.
And they do so with the fee structure, that's not very sustainable.
What we know our experience is that.
Clients want more comprehensive solution so.
We're able to provide the self the self directed solutions for not just truckloads, but it could be.
Case palette truckloads, even container loads, we have a much broader buyer base.
All lot sizes, and and also for all types of goods both.
Category and condition type.
And having that.
Expansive buyer base to absorb the full range of goods is very important and very valuable for clients at sort of a one stop solution and if there is a thing that we've learned in the downturn is that.
Once.
A smaller providers buyers top performing and those good stopped moving it's a big logistics headache and challenge for.
The client and so the ability for us to step in and handle logistical issues.
Through other menu of services is highly valued.
So what we'll see is.
The went into the continuum offering.
The tech enabled self service solution for the clients many of them are small and midsize enterprises, who want that.
But if clients want pay more durable scalable solution.
You have to provide more than just that you have to provide.
Additional value added services, you have to be able to manage logistic and storage issues and have that broader buyer base and depth of large lot liquidity to move the full range of goods and all condition types.
Great. Thanks Bill.
Our next question from Gary Prestopino from Barrington Research.
Yes, I just wanted to address the increasing cash for the quarter, where I know you kind of discussed there were some.
Things there that you know I think you may have said and I don't recall I wasn't able to write it down that the buildup in cash occurred because you may be delayed some payments or something could you just kind of address that for me.
Sure Gary.
Regardless of any.
Deferred payments or any anomalies, we just had a strong cash generating quarter.
Right as you.
As you know I've said in the path that if you look at our history.
Our cash generation overtime, not in any particular quarter, but over time.
As a very good correlation to our adjusted EBITDA less capex.
And the fact that we had strong adjusted EBITDA is a good.
Reason for having good positive cash generation that said we did.
We did in the quarter.
Work hard on maximizing our cash and that included some deferrals of some outflows.
Of catch that.
That.
We'll take.
Plates here in the.
Fourth quarter.
And one example of that.
Right at some compensation payments like the deferred comp the.
Deferred compensation is that we had and the other vendor payment.
That.
We got some temporary terms like a lot of people did during the pandemic.
April May June.
Timeframe, but I think generally speaking it was a good.
Quarter for cash generation.
Our business model is one.
As Bill has said that lends itself.
Cost generating.
Our ability when we have.
Profitable top line growth we're not.
Heavy.
Were.
Heavy investment type of company, we do have some inventory, but not a lot we're pretty asset light and as we move.
To a greater mix of consignment, which includes self service course.
What we see as that we just we along the way up growth environment, we generate very strong cash because it's a very.
The consignment, especially self service business very scalable.
And Leverageable.
When it's growing profitably.
So hi, hi.
I think that.
Regardless of some of our.
Exceptions.
It was still very very good quarter from a cash point of view.
Okay, and that deferred comp really deals with the restoring full pay in providing back pay for the salary reductions.
Yes and that was.
Yes, that's correct.
Okay. That's fine thank you.
And I'm showing that there are no more questions in queue.
Great. Thank you all for your participation in today's call. If you do have any additional follow up please feel free to reach out to me afterwards.
We can get something set up thank you and have a good afternoon.
Thank you ladies and gentlemen. This concludes today's conference can you were participating you may now disconnect.
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