Q2 2022 Liquidity Services Inc Earnings Call
Welcome to the liquidity services, Inc. Second quarter of fiscal year 2022 financial results Conference call.
My name is James and I'll 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.
On the call today are bill angry 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 their prepared remarks.
The following discussion and responses to your questions reflect liquidity services management's view as of today may five 2022.
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 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 services management will discuss certain non-GAAP financial measures.
In its press release and filings with the SEC each of which is posted on its 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.
Supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results.
At this time I now turn the presentation over to liquidity Services' CEO Bill language.
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 long term investments in our people products and innovation.
Bedroom rewarded as.
As we set another quarterly GMB record.
More business and government organizations are interested in the digital transformation of their supply chain.
And we are leading this generational transformation with our trusted marketplace platforms.
<unk> service model and worldwide reach.
Our business is very resilient.
In both periods of economic contraction.
And expansion.
This attribute was on display.
During Q2.
As we continue to provide sellers and buyers with key tools to.
To help them respond to challenges and global supply chain operations.
Inflation and uneven economic growth.
We grew our <unk> by 34% year over year in Q2 two.
Approximately $277 million, an all time record and our seventh consecutive quarter of 20% plus annual GNP growth.
The continued relevance.
And leadership.
Of our circular economy marketplace platform and.
And every sector of the economy it's.
It is driving us closer to our objective of $1 $5 billion in annualized <unk>.
During this journey our business continues to become a more asset light.
Capital efficient model.
Is 87% of total GMB and Q2 utilize the consignment pricing model.
Up from 82% last year.
Got the L. G M D.
Increased 62% during Q2.
Driven by record New account acquisition.
More agencies shoes, our digital marketplace solutions over traditional sales methods for a broader array of assets, including.
Vehicles heavy equipment and real estate.
The increase also reflects the inclusion of our acquired bid for assets online real estate marketplace and higher recovery rates.
In selected categories due to macroeconomic factors and strong <unk>.
<unk> performance.
Together personal property and real estate.
<unk> represents an over 3 billion dollar addressable G&P marketplace for our <unk> segment.
We're making terrific progress as the leader in this sector.
Our retail supply chain group segment was flat year over year during Q2, principally due to a mix shift in selected programs, which resulted in lower value goods being returned and sold in our marketplace versus the prior year period as the end consumer has shifted from a stay at home consumption at year.
Go to out of home consumption with the reopening of the economy.
More broadly we are pleased with our new account acquisition activity is there.
Our retail supply chain group segment continues to sign new business with omni channel and e-commerce retailers throughout North America.
This is reflected in the activity within our two new distribution centers in Phoenix, Arizona, and Pittsburgh, Pennsylvania, which are trending above expectation as we expand our market share and deliver more convenience and value.
For our customers.
Our capital asset group segment was flat year over year, principally due to postponement of selected industrial sales due to COVID-19 related restrictions in China.
Performance in our heavy equipment, Biopharma and energy verticals.
It was strong in Q2, and we expect to recover delayed sales in the second half of the year.
Grow our CAG segment, <unk> by 20% or more for the full year in 2022.
CAG business development activity was strong in Q2.
With many new mandates signed with global 1000 clients.
<unk> Tc energy.
U S steel international paper.
Waters Corporation and on semi.
Finally, our machinery segment revenue increased 29%.
In Q2 over the prior year period as equipment owners and dealers continue to demonstrate strong engagement.
With our digital classifieds marketplace and inventory management solutions for used capital assets.
Our mission of building a better future.
The sellers buyers on the planet has.
As highlighted in our recently issued liquor.
Liquidity services 2022, ESG report available on our corporate website.
This new report highlights how we are helping organizations intelligently integrate sustainability initiatives into their core business unlocking value through increased efficiency and creating loyal customers who value and appreciate the improved stewardship of the environment.
Our surplus management solutions don't just help our clients meet sustainability goals.
They generate profits and cost savings for our clients.
As an example during Q2 liquidity services received the value and Excellence award from ADM.
A global leader in human and animal nutrition with over 800 facilities worldwide.
Our surplus asset management program streamlined adm's surplus inventory process.
Supporting our client's sustainability goals and created over $11 million and incremental value.
Through asset sales cost avoidance and capital expenditure savings.
This is an important client program.
It was also able to positively impact the environment.
Enabling the reuse and redeployment of underutilized assets leveraging key circular economy enablers in the process.
Indeed, our mission and value proposition is resonating not only with customers, but also our team.
And it benefits our efforts to attract top talent to execute our business plan as.
As we take aim.
And our next leg of growth.
We grew our head count in Q2 by approximately 23% year over year.
Principally in the areas of technology business development marketing and operations.
These incremental investments are directly tied to capturing market share.
And delivering long term shareholder value.
Our mission.
Our mission.
That value proposition.
Is also resonating with buyers.
During Q2, the number of registered buyers on our platform grew 23% year over year.
Nearly $4 8 million, which.
Which provides our sellers superior execution for the sale of their assets.
During Q2, the number of completed transactions in auction participants send them.
On our platform were up.
41% at 48% respectively.
Reflecting the growing liquidity at our marketplace.
As inflation becomes a more pervasive issue.
Affecting consumers and enterprises alike, and the global economy.
Our marketplace is proven to be a very attractive channel sourced valuable equipment and inventory.
Our continued market share expansion and planned growth.
Multibillion dollar GNP company.
As the result of long term secular trends and the associated investments we've made in our marketplace platform to drive digital transformation in the supply chain to benefit customers.
Our marketplace plays a vital role.
And solving the needs of both large enterprises and small businesses and navigating.
Several macro trends, including including the growth.
Of online commerce.
Which drives more product returns.
Increasing product obsolescence as organizations at that next generation technologies.
And the shared goal of reducing waste.
Through smart asset redeployment and remarketing.
Strategies in every sector of the global economy.
With a profitable growing business liquidity services continues to evaluate.
Intelligent uses of cash, including organic growth initiatives to further penetrate opportunities in our existing markets.
Share repurchases and.
And tuck in acquisitions.
In closing we thank our team members across liquidity services for their dedication to our mission to power the circular economy and provide our customers a.
High level of service.
I'll now turn it over to Jorge for more details on the quarter.
Good morning, our second quarter results reflect continued strong performance from our <unk> segment.
<unk> growing contributions from bid for assets.
It's real estate vertical as integration progresses.
Consistent with the first quarter.
Our results also include incremental resources in our sales marketing and technology groups.
Investments in our new all surplus deals growth initiative.
And expanding the operating capacity of our <unk>, our retail segment.
Efforts to diversify our geographic reach.
Fiat base and sales channels.
As global supply chain continued to experienced turbulence in the near term.
We expect consignment transactions to be a driver of our GMB growth throughout the remainder of the fiscal year.
We completed the second quarter of fiscal year, 2022, with $276 $9 billion at <unk>.
A new quarterly record.
We have exceeded.
$1 billion in <unk> on a trailing 12 month basis.
<unk> was up 34% from $207 3 million in the same quarter last year.
Revenue for the first fiscal quarter was $68 3 billion, an 11% increase compared to the same quarter last year.
As previously highlighted our long term strategy involves seeking higher growth and combined with <unk> sales, while continuing to offer purchase options.
Other value added services to our seller clients.
The higher growth and proportion of consignment, including real estate sales has the effect of lowering our ratio of revenue as a percent of <unk> and <unk>.
Housing revenue to grow.
At a lower percentage.
<unk>, despite market and market share increases.
Gross profit as a percent of revenue.
Remained steady within the most recent range.
Net income for the second quarter was $12 billion, resulting in diluted earnings per share of 35.
This concludes.
At $8 $5 billion or <unk> 25 per share noncash gain from a reduction.
In fair value.
From a reduction in fair value of the bid for assets earn out liability.
At certain flows originally expected auction activity are now expected to fall outside of the earn out period.
We also anticipate paying $3 5 billion.
In the third quarter for bid process achievements of the initial <unk> outperformance target.
The remainder of.
The remaining expected earn out payments are.
<unk> not anticipated until the first half of fiscal year 2023.
non-GAAP adjusted EBITDA was $9 2 billion slightly down by $200000 from the same quarter last year.
Reflecting our planned investments across our segments for long term growth in the market.
And market share <unk> gross profit.
While continuing to position ourselves to meet the demand from expected macro trends.
Our investments are also tailored to continue to transform our market capability.
Driven by our technology platform.
At our sales efforts.
We hold $84 3 billion in cash.
Performed $17 billion in share repurchases during the quarter, resulting in lower outstanding shares versus last year.
And our trailing 12 month operating cash flow was $48 6 billion.
We have zero financial debt.
During the quarter, we entered into a credit facility agreement that provides us with the flexibility of a $25 million line of credit.
Specifically.
Comparing segment results for this second quarter to the same quarter last year. Our <unk> segment was up 62% of <unk> at 33% of revenue, including bid for assets or retail or <unk> segment was up 1% on GMB and up 7% on revenue at our CAG segment was down 1% on <unk>.
<unk> about 5% of revenue, reflecting delayed partner in project based sales.
So the second half of this year.
<unk> was up 29% on revenue and continues to scale and expand its services to customers.
In the third quarter Gov deals will again benefit from its seasonally high period.
It will also be further boosted by the <unk> acquisition.
And as bid for assets continued executing on its pipeline of real estate sales.
<unk> pipeline remains strong even if.
Some deal specific timing shifts into the fourth quarter may occur given heightened recent global supply chain challenges in Europe and China.
Retail continues to successfully focus on diversifying the seller base and product supply.
Including with investments in operational resources and <unk>.
Also executing on transforming our investments into additional diversified buyer demand opportunities.
Our third quarter of fiscal year 'twenty two guidance range for <unk> is above the same period last year. Despite last year's strong market prices for used vehicles adult deal.
And a more favorable mix of supply and related take rates.
At <unk> last year.
As consignment GMB sales grow faster under the purchase sales model.
And as we integrate the sales from our growing real estate business.
Revenue as a percentage of <unk> is expected to decline, resulting in a slower revenue growth percentage.
From this strategic business model shifts.
Our profit guidance for the third quarter of fiscal year 'twenty. Two is below the same period last year.
<unk> consolidated gross profit margins expected to remain similar to our recent range.
Our outlook for the quarter reflects the retailer or as the Jeep product supply flows and related mix changes compared to last year and increased operations cost from the growth initiatives.
Along with higher overall, companywide sales marketing and technology costs to drive longer term growth across our segments towards our $1 $5 billion annual GMP goal.
As a reminder.
As a result of reversing our tax valuation allowance in the fourth quarter of fiscal year 'twenty one due.
Due to our strong level of profitability trends.
Our effective tax rate is expected to be approximately 16% to 22%.
In the third quarter of fiscal year, 'twenty, two depending on mix of profits and other factors.
This higher effective tax rate compared to last year, we will have no significant corresponding increase in cash paid for income taxes for the fiscal year 'twenty two.
Yet we will have a negative year over year comparable impact to our fiscal year 'twenty to net income and earnings per share.
Management's guidance for the third quarter of fiscal year 'twenty two.
Is as follows we.
We expect <unk> to range from $330 million to $360 million.
GAAP net income is expected to range.
From 3 million to $6 million with a corresponding GAAP diluted earnings per share ranging from nine to 18 per share.
We estimate non-GAAP adjusted EBITDA to range from $9 billion to $12 billion.
non-GAAP adjusted diluted earnings per share is estimated.
In the range of 16% to 25 per share.
The GAAP and non-GAAP earnings per share guidance assumes that we.
Have between 34% and $34 5 billion.
Wholly diluted weighted average shares outstanding for the third quarter of fiscal year 'twenty two.
We will now take your questions.
Thank you we can begin our question and answer session. If you have a question. Please press zero one on your Touchtone phone.
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Okay.
And our first question is from Gary Preston Tropeano with Barrington Research.
Hi, good morning, everyone.
Whole series of questions here first of all Bill did you have what was the organic growth in <unk> for the quarter.
If you're looking at.
The bid for assets piece, we're still in the mid to upper teens close to 20%.
Okay, that's without bid for assets right or you are that's likely bid for assets.
Correct.
Okay.
Alright, and then could you maybe.
Talk a little bit about what is going on in the Rs and.
C G segment.
The shift in.
What's your processing or whatever is it.
Because of the fact that people are not locked down in their houses theres less big ticket items being returned and more.
Whatever.
That.
It might have more touch points or less profitable to you.
That's right and we noted that in the call you had seen that basically.
Retail supply chain trends.
Instead of buying.
High ticket lawn and garden equipment to have a staycation at home.
Major renovation with building tools and.
Maybe an in home entertainment people have shifted spending to out of the home.
Travel and entertainment.
Travel experiences.
And so we have very strong.
Activity and diverse supply chain just at the average order size I think of the original purchase has come down.
And people have.
Been shifting dollars into other categories.
Okay.
So.
Alright.
And this will probably be continuing.
On a comparable basis throughout the year.
Correct, because nothing is really going to change there unless I mean with the new facility that you built out in Pennsylvania was that really a function of signing new clients or is that existing clients that.
Want to try and.
And process more products through you.
The initial underwriting of the expansion was based on existing clients who.
We're at close closer to high density population centers selling more omnichannel online. So it is a great example.
And the trading these relationships, but we've picked up new business. Since we are we're there. So I think the good news for you.
Our growth plan is we're getting traction with many new clients.
Helping us offset what I think everyone would agree was sort of a.
Unique set of circumstances.
20 latter part of 2020 in 2021.
With significant dollars being spent online and four.
Major.
Cocooning.
Activity with a lot of high ticket items.
As a pervasive need for the management and sale of return.
We're the leader in that space, Gary and we're making a lot of progress.
Growing the business.
Okay I'll, let somebody else go and then I have some further questions.
Actually Gary we have no further questioners. So please okay.
Okay, that's fine.
Thank you for that.
So then in the CAG segment.
I think bill you mentioned that there were some canceled projects.
<unk> coming out of China, with Covid, and all that but do you expect that.
Growth in the back half of the year does that mean, when you say cancel does that mean they were pushed back or did they go away.
Differed deferred delayed okay.
So you feel you feel like they'll come in into the fold in the next six months.
Yes.
Okay.
Alright.
<unk>.
And then on your head count, which was up 23%.
The majority of all of that.
Those additions.
And marketing personnel to support your expansion activities growth activities.
Yes, three areas we noted.
Sales demand generation, which is a marketing function supporting that sales effort.
And the technology.
Product development.
Function.
Okay and areas.
Machining.
We're building out more services, we're having great success with our self directed programs and so we're continuing to provide ways too.
It will make it easier for people to list and sell and transact.
The capital assets heavy equipment category, which is another bright spot for us.
Overall, we're seeing very very good adoption of the <unk>.
Self directed consignment model.
Areas like heavy equipment and real estate.
Okay. So then as we look at the expense line core <unk> as a percentage of say total revenues I don't have it broken down in any other way.
No.
With those levels that we've seen Q2 basically kind of hold for the deal.
Within reason.
The rest of the.
Year.
Or are the or is it more or less does absolute levels will stay there.
Gary we also.
<unk> because of the Pennsylvania facility.
Growth in our all surplus deals Phoenix location.
Our head count in the operations Slide is also.
Part of that that growth in head count right.
Alright, but jumped so tech and ops.
Yeah.
Sales and marketing will grow.
In absolute dollars each quarter.
Moderately.
I'd say.
Our our gross profit.
Certainly should outgrow.
Our operating expense increase.
But the actual dollars.
As of this point I don't see flat.
Slightly up each quarter.
Okay, and then a number of in that area a little expensive.
Okay and then just lastly on your cost of goods sold is that that number is reflective of just what you do on a purchase basis for product is that the spread there or are there other expenses in there that deal with the fee generation revenue.
That's basically yet, but we can.
Take a quick peek at the at the 10-K Youll see the other details, but it's probably not worth.
Going through them on this call, but yes, no. That's fine that's fine I just wanted to get some idea because it seems to be running higher than your fee based revenue growth and I just wanted to get.
I can look at that myself alright.
Thank you guys appreciate it.
Okay. Thanks, Gary soon bye bye.
And we have no more questions.
Operator, you can conclude the call.
Okay. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
[music].
Sure.