Q2 2021 Liquidity Services Inc Earnings Call
Welcome to liquidity services incorporated second quarter fiscal year 2021 financial results Conference call.
My name is Vanessa and I will be your operator for today's call. Please note that this conference 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 angry ex liquidity services, Chairman and Chief Executive Officer, and Jorge Celaya, Its executive Vice President and Chief Financial Officer, They will be available for questions after that.
Prepared remarks, the following discussion and responses to your questions reflect liquidity services management's views as of today May six 2021 and will include forward looking statements actual results may differ materially additional information about factors that could potentially impact our financial results is on.
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 server.
<unk> management will discuss certain non-GAAP financial measures in its press release and filings with the SEC each of which is posted on the website you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures liquidity services management also.
Use certain supplemental 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 and Greg.
Good morning, and welcome to our Q2 earnings call.
I'll review, our Q2 performance and provide an update on key strategic initiatives next Jorge Celaya will provide more details on the quarter.
Our business delivered strong results across all segments in Q2 and continues to benefit from strong momentum in customer adoption of our solutions.
Resulting in our third consecutive quarter of substantial year over year growth.
We are grateful for our team's efforts to safely deliver outstanding results for our customers both on our fulfillment centers and remotely during the quarter.
In summary.
Our business is that the intersection of several powerful market forces that will benefit liquidity services for years to come.
First <unk>.
Water market adoption of the online economy.
Continues to drive strong demand for our online platform and services from both new and existing customers and the retail industrial and government markets.
Second.
Our E Commerce marketplace solutions continued to power the circular economy.
Which benefits businesses.
Society.
And the environment.
We achieved this through our safe and effective resell and redeployment of surplus assets.
A reduction of waste carbon emissions and transportation costs and.
And by creating markets for items that would otherwise be landfilled.
Large enterprises small businesses and government entities are increasingly turning to liquidity services.
They seek safe and effective strategies for maximizing the value of surplus assets and delivering on their sustainability initiatives.
Our Q2 results demonstrate that our rise strategy has positioned us well to address customer needs against these broader market trends and capture increased transaction volumes.
As the world seeks to be a better steward of the environment. We look forward to continuing to work closely with our customers and stakeholders on our mission to build a better future for surplus.
And this is translating into results.
Consolidated <unk> was up 44% year over year.
The number of auction participants on our platforms was up 14% year over year or completed transactions rose, 16% year over year, and we grew our adjusted EBITDA by $10 $9 million over the prior year period, we anticipate our trailing 12 month adjusted EBITDA should reach.
$36 million as we exit the June quarter.
<unk>, even as we continue to invest in growing our business.
G N V and our Gov deals segment grew a record 44% over the prior year's comparable quarter as more government agencies.
Utilized our digital platform and transact at higher volumes across a larger breadth of key categories, including transportation and real estate.
And our growing buyer base and automated asset promotion tools drove higher realized values through our marketplace.
Of note during Q2, we signed the state of Ohio City.
City of Tallahassee, Florida in the Washington Metropolitan Transit Authority, among others and we continue to have a robust sales pipeline.
In addition, our government agency clients appreciate that our solutions have been successful in reducing cotwo emissions from urban areas through the use of our online marketplace for the sale of vehicles and heavy equipment.
G M B in our retail supply chain group segment grew 32% over the prior year's comparable quarter as large an SMB retail sellers utilized our online platform to capitalize on secular growth in online retail and we expanded our.
The city to serve the resulting higher transaction volumes on our marketplace.
GMP in our capital assets group segment increased 65% year over year, driven by continued growth of our industrial and heavy equipment categories.
And increase the use of our consignment model internationally.
Our machine he owes segment grew revenue by 31% year over year.
As global equipment owners and dealers continue to embrace our digital marketing solutions to acquire buyers at lower costs when compared to traditional marketing channels.
Our newest marketplace all surplus dotcom continues to gain traction.
As new buyer registrations grew nearly four fold from a year ago.
And we continue to see strong buyer activity.
In GNP growth in key asset categories, such as transportation.
Construction.
Real estate.
Consumer goods and Biopharma.
Through our domain expertise.
Innovative technology platform and integrated services, we are driving the continued digital transformation of the reverse supply chain across the retail industrial and public sector markets, which together comprise a 100 plus billion dollar market opportunity for liquidity.
Services.
Overall, our strategy and platform investments.
Have yielded strong results to date and.
And we are well aligned to customer needs in a changing landscape with higher e-commerce demand.
We have strong activity in our sales pipeline.
And we are optimistic about our growth prospects.
Against this backdrop, we remain focused on our goal of eclipsing $1 billion of annualized GMB by continuing to execute our rise strategic plan.
In closing we thank our team members across liquidity services for their dedication to our mission.
And we're excited to continue our role as a global market leader to create value for our customers.
And our shareholders.
I will now turn it over to Jorge for more details on the quarter.
Thank you Bill and good morning.
We completed the second quarter of fiscal year, 2021, with <unk> $207 3, million% to 44% increase from $144 $3 million on the prior year's comparable period.
Revenue for the second quarter.
The $1 8 million, a 17% increase compared to the same quarter last year, while net income.
For the second quarter was $5 3 million.
Bolting on diluted earnings per share on 15.
Our results compared to the same quarter last year.
Have shown significant improvement non-GAAP, adjusted EBITDA was $9 4 million and $10 $9 million improvement.
Our profitable results. These past four quarters speak to our market leadership position has enabled us to take advantage of the accelerated secular trends in e-commerce growth on the.
The actions, we took to reposition ourselves.
On a leaner business model focused on leveraging growth to enhance platform services.
We continue to look for ways to work our platform and complementary services capabilities to the advantage of our customers to expand market share and to generate results for our investors.
The second quarter fiscal year 2021, comparative year over year consolidated financial results reflect increased volumes across all our segments as we have diversified our customer base across large enterprise to small businesses and government entities, which continue to benefit from our safe effective and sustainable.
E Commerce solutions.
Our higher proportion of service on consignment revenue.
That includes our self service solutions has resulted in improved gross profit margin to 57% this quarter from 50% last year.
We have also experienced improved margins from the mix of products sold.
On asset recovery rates achieved.
Partly influenced by favorable macroeconomic trends and certain asset categories.
And by the unprecedented access.
Our platform provides our significant buyer base and our leadership position with our marketplaces.
Our bottom line results reflect our overall increase in top line volume across our segments, our higher gross profit margin on the leverage of our operating expenses.
A key goal of our multi year business transformation and investments in our technology has been to enable us to leverage our platform per scale and more profitable results.
We are pleased in our ability to have sustained solid performance this past quarter.
Specifically comparing these.
These second quarter results to the same quarter last year, our GAAP deals segment was up 44% on G. M. B on 40% on revenue on.
Our retail RCD segment was up 32% on G M D and 8% on revenue and our current segment <unk> was up 65 per cent.
Or 35% up on revenue.
<unk> revenue was up 31%.
Changes in service mix, such as a greater proportion of consignment activity kind of result in recording lower revenue growth compared to DMV growth yet produced a higher gross profit margin as a percentage of revenue.
We have a debt free balance sheet and ended the quarter with $87 $6 million in pass up $9 $8 million from last quarter, having completed $12 million.
In stock repurchases during the quarter we.
We used $2 million.
The share repurchase authorization debt remained from the first quarter of fiscal year, 'twenty, one and completed the entire $10 million share repurchase authorization announced on March eight.
On may 3rd earlier this week, we received a $50 million share repurchase authorization.
Please refer to our 10-Q for details on this on the quarter.
Looking ahead, we continue to see a solid pipeline spend on customer relationships and other long term indicators of positive performance.
And we believe we are well positioned to create value by focusing on leveraging our E Commerce platform services.
Our third quarter of fiscal year 2021 guidance range is above our results for the same period last year.
Reflecting increased transaction volumes from the accelerated market adoption of the online economy that is creating strong demand for our services from both new and existing customers seeking.
To access our growing buyer base.
Some items or recovery rates using our platform.
Last year's third quarter of fiscal year 2020 results reflects the most significant economic restrictions.
At the onset of the COVID-19 pandemic caused solid backlog accumulations and created substantial transactions delays much of which wasn't covered starting in the fourth quarter of fiscal year 2020.
Management's guidance for the third quarter of fiscal year 2021 is as follows.
We expect <unk> to range from $220 million to $230 million.
GAAP net income is expected in the range of $4 5 million to $6 $5 million with a corresponding GAAP diluted earnings per share, bringing from 13 cents to <unk> 18 per share.
We estimate non-GAAP adjusted EBITDA to range from 8 million to $10 million non-GAAP adjusted diluted earnings per share is estimated in the range of 17 cents per <unk> 41 per share.
This guidance assumes that we have approximately 30.
<unk> $35 5 million diluted weighted average shares outstanding during the third quarter of fiscal year 2021.
Thank you we will now take your questions.
And thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key if youre using a speakerphone. Please pick up the handset first before pressing the numbers that is.
Star then one if you have a question and we have our first question from Gary <unk>. Please go ahead Sir.
Hey, good morning.
Yeah Bill.
Couple of questions here Bill as I went through my notes from last quarter, you mentioned something that higher recovery rates on assets that have increased close to 20% are you still trending at that level or has that increased.
Sequentially.
We are realizing strong recovery rates as buyers continue to have.
Really interesting and what.
What we see is durable.
And for the type of equipment and inventory on our marketplaces.
So I would say it's been a consistent trend.
Nothing.
Moving sharply up or down.
Okay.
And then can you maybe you know the results were really good a lot of growth here.
Things.
Coming off the plan is since you have done.
The liquidity one initiative, but can you give us some idea maybe or is there any way for you to kind of parse out with the.
The GMB growth how much of that you think was organic versus how much of that was from adding.
New sellers on the platform.
Well I'd say the bulk of that is.
Organic.
At the margin, we're always expanding what we're finding Gary is that.
<unk> are really desirous of a one stop solution for all of their asset categories.
And we're very successful in.
Penetrating high value categories.
Such as.
Vehicles.
Yes.
Heavy equipment.
And now real estate with some of our existing relationships.
Yes.
To put some context around that we think the real estate market.
Our real estate that flows through many of the government entities of which we have.
You know some 14000 government agency clients go back to two $2 billion plus target addressable market in the U S in which we have.
Yet to really scratch the surface of we think the heavy equipment market in the fleet business.
Is another.
Several billion dollars plus target addressable market for us and we're very nascent and.
On penetrating that market.
So we really enjoy high levels of trust.
With fortune 1000 entities that have lots of.
Equipment in their supply chains, and these 14000 plus government agency clients that are using our platform more and more to do the full range of asset categories, and Thats really powering our organic growth.
Okay.
Just a couple more here.
In terms of it looks like revenue to <unk> was about 30%. This quarter is that a good percentage on a go forward basis as we model out the back half of the year.
Okay.
Yes, okay.
Okay.
Take because it's hard to predict.
No when we have especially in the capital assets business when we have.
Some.
Purchase deals that may fluctuate from quarter to quarter, but generally speaking right on the ranges I gave you on the path.
And then and then lastly for me it looks like the Tech and operations expenses were up almost one $5 million sequentially was there anything going on there that.
Cause that.
Is that level.
Level of $12 million, a quarter or is that something that is going to be sustained through the back half of the year.
Yes.
The.
Last quarter for example, we had some additional marketing campaigns or.
Just like our sales expense our marketing.
A portion of the sales and marketing as you know.
A bit variable.
So we did have some marketing campaign investment that we made last quarter, which of course.
It leads to better activity.
Coming into this quarter. We just finished so that will vary from time to time.
I think.
We're probably at a reasonable level, where we are now we may make some additional investments on.
In the sales and marketing area as we go forward.
And then the technology a bit as we go forward as we look to.
Expand some of our <unk>.
Services for example in.
Like Bill mentioned.
In the government area or real estate or more heavy machinery or in the retail segment.
Couple of additional thoughts on technology and operations.
The first thing is we have a very highly valued.
Fulfillment center networks and that flows through tech it ops and we've just had tremendous interest in demand for those services and we've continued to run at a very high level of capacity, but that Opex has trended higher as we've seen strong organic growth Gerry in that area.
Secondly, we continue to invest in technology, driven services and solutions.
And we're modernizing those solutions, making it very mobile friendly so things such as our scan and sell application we're now.
Increasing the availability of AP eyes for our enterprise clients to connect to that scan and sell tool from their own facilities to load and sell from their facilities with their teams on our marketplace that requires some investment for us.
We also like the idea of.
Having multichannel capabilities and allowing clients to sell both <unk> and <unk> channels.
We can continue to modernize debt stack, we're doing a lot of investment investing in data analytics.
To support.
The marketing measurement of the marketing.
The attributes and what's helping us drive the acquisition and conversion of our buyers for multiple channels.
That's helping our sales organization and our buyer marketing teams. So there's some investment there. So these are normal.
Continuous improvement types of investments coupled with.
<unk>.
Scaling up our warehouse distribution center network to meet.
Very robust organic growth.
Okay, Thank you and Gary.
Gary we're not.
We're going to continue to be.
Aware of as we make these investments.
That they continue to be very tied to short and medium term returns right. So yes, you may see some.
But it's.
It's I.
I wouldn't say dramatic, but there may be from time to time and as we make these investments Bill mentioned.
I think that's kind of the way to look at it.
Okay. Thank you.
And thank you we have our next question from Colin Sebastian.
Alright, great. Thank you. This is the adult and current on for Colin.
Congrats on the quarter guys. A couple from me here first on the the retail supply chain group, specifically it looks like a nice sequential acceleration in GMB growth here can you break out how much of that was kind of a more of a one time benefit from the post holiday return volume versus May.
Higher baseline return rates from some of your retail partners and any sense per kind of how you expect that to trend over the next few quarters as we roll past that big holiday E Commerce boost and get some normalization in shopping volumes.
Well.
I'll just talk broadly and then Jorge can.
Talk with regard to the guidance, but.
Typically.
Dalton, we would have some seasonal peak.
Coming out of the holiday season, and this is a monster holiday in terms of digital.
Sales growth income.
Versus retailers did quite well.
Certainly we are.
Inexorably linked to their supply chain and the volume of returns that's coming as a consequence of this growth of online retail. That's a secular trend has continued for many years I think we have 18 consecutive quarters of organic growth in the retail business 18th consecutive so we've seen this trend and we've continue to risk.
Bond to it.
We have seen that the behavioral shifts of people buying more online seems to have stuck.
It seems to be more of a permanent behavior. So, whereas some people might have thought there would be a pause in online shopping as the economy reopens it seems to be a.
And.
Phenomena, there continuing to buy online and they're spending money out in the brick and mortar world. So.
We've seen steady volumes.
Through the start of this quarter as people continue to have that habit of going on line.
They like the services they like the convenience they like the value proposition and that's fueling large volumes of returns coming through to our marketplace.
And that's that's maybe a little bit unusual compared to like two or three years ago, So healthy growth.
Because of that phenomena.
As well as just strong receptivity for our services, we talked a lot about the macro trends.
We have clients that are very interested and zero waste.
Sustainability initiatives, we create markets for every type of product from new use salvage and scrap so we're finding ways to assist our customers in the retail supply chain to reduce waste and that's also something thats, helping us.
Continue to grow.
Colin Your line is still in Q anything further.
Great sure.
Thanks, maybe one more here.
The consignment mix noticed that was down slightly sequentially, obviously still up year over year.
I guess this is kind of tied into the earlier question around take rates, but do you guys expect to be able to really expand that further in the near term or is this kind of low to mid <unk> range kind of consistent run rate that youre comfortable with for now.
Low to mid eighties just reflects.
Where the customer is self selecting in two different options again, we provide a menu of options, we don't dictate to our clients what they need to use.
Occasionally in the capital assets business will have some purchase model transactions, reflecting.
Quarter end goals and people would rather have a purchase arrangement versus the consignment arrangement, but if I were to tell you over the next few years, where that consignment mixes going it will it will trend up it will trend up because we've just given.
More oh.
Empowering tools to handle the transfer of.
The physical flow of assets using our tech tools helps self directed tools and.
Just a day.
Increasing realization that day, they get to share more of the upside.
With that consignment model, so I think that's something that will.
Maybe in the next year stay in the range. It has been but will continue to sort of slightly move up overtime.
Great. Thanks that helps and then maybe one more.
Looking at the sales and marketing kind of circling back on the earlier question and maybe looking at it more broadly as well.
I know there was a bit of a pullback in sales and marketing in the quarter and you mentioned kind of rolling off that that campaign earlier in the year, but.
What's the rationale here for not.
Pending a bit more against that strength and kind of capturing the momentum that you are getting right. Now is it just a matter of organic growth trends are strong enough that you don't feel the need to or is there any kind of changes we expect through the back half of the year. It sounds like in the guidance, you're expecting a little bit more spending on <unk>.
Development, So should we expect that to ramp up a bit is that organic growth kind of moderates a little better starts to lap those comps.
We agree with you that now is an ideal time to be sharing our message.
And we intend to.
Invest in the business development part of our business and that is coupled with marketing activities, but very targeted to <unk>.
Certain end users certain.
Market sectors with thought leadership.
Case studies.
And there will be at the margin.
Increased investment in the seller facing marketing communications.
And lead generation.
We have a scalable online platform that can activate.
Not only fortune 500 companies, but a lot of the small and middle market businesses that are all experiencing the same trends as the larger customers.
Can activate their their accounts.
Lower touch way, they can load assets and sell assets on a marketplace through our self directed tools and so we want to get out and make sure that they know about our markets and that will require a bit of investment but.
In the context of a business that is trending to higher average sales values.
We think GMB.
Is actually a beneficiary of any inflation trends that.
Leak into the market, we're a beneficiary of that because we we drive higher pricing and a marketplace when theres more demand from the buyer base, we're very active in.
Maintaining healthy buyer participation.
And so that that tends to give us leverage on our overall expense model.
Dalton.
Independent of what we're spending money on.
Great. Thanks, Bill really appreciate the color.
I see no further questions in queue.
I think that concludes our call. If you have any questions. We will be following up offline. Thank you for your attention and this insurance our call.
And thank you ladies and gentlemen, this concludes our call. We thank you for participating and you may now disconnect.
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