Q3 2023 Liquidity Services Inc Earnings Call
Same as Felicia Crabtree and I will be your operator for today's call. Please note that this conference call is being recorded.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Yeah.
On the call today are bill angry at liquidity services, Chairman and Chief Executive Officer, and Jorge Celaya is 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 August 3rd 2023 and will include forward looking statements actual results may differ materially additional.
Information about factors that could potentially impact the financial results is included in today's press release and in filings with the S. E C, 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 matrix and commentary on the quarter.
Yes.
During this call liquidity services management will discuss certain non G. AAP 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 G AAP measures.
Including the reconciliations of these measures with the comparable G AAP measures as available.
Liquidity services management also uses certain supplemental operating data as a measure of certain components of operating performance, which they also believe is useful for management and investors. This.
The supplemental operating data includes gross merchandise volume and should not be considered as a substitute for or superior to <unk> AP results.
At this time I will turn the presentation over to liquidity services, Chairman and CEO Bill Ingrid.
Good morning, everyone.
Welcome to our Q3 earnings call I'll review, our Q3 performance and the progress.
Gross of our business segments.
The next Jorge will provide more details on the quarter.
We achieved record <unk> during the quarter.
Driven by strong execution for clients and market share gains.
Investments in sales marketing.
Our outstanding participation from our 5.1 million registered buyers and flexible service offerings continue to attract more sellers and drive better silver recovery, which in turn powers our growth.
Together this allowed us to deliver financial results above our guidance range on both the top and bottom line.
Notably our adjusted earnings per share grew at an impressive 33% year over year.
Despite the persistent headwinds in our bid for assets real estate vertical.
Zonian business model continues to deliver strong free cash flow and we will continue to repurchase shares as we see opportunities and our long term prospects.
Let's take a closer look at our individual segments.
Our retail segment GMB grew 20% organically to $72 $7 million driven by our flexible offerings.
Reliability and high level of service to customers, which has allowed us to expand our market share.
Direct profit grew 12% year over year as we continued to drive innovation in our retail segment.
To deliver value and convenience to our customers.
In particular, we continue to expand our all surplus fuels channel, giving consumers access to exciting online auctions of unique are hard to find retail products.
<unk> values that can be picked up by the winning bidder from selected distribution center locations.
We plan to continue to expand this channel to unlock a $100 million GMB growth opportunity over the next few years.
Our <unk> segment, GMB decreased 4% year over year to $213 million, reflecting lower results in our acquired bid for assets real estate marketplace.
Versus the prior year period.
With the delay in the rollout of new contracts.
Mortgage and tax foreclosure sales, which are at a multiyear low.
Excluding book for assets are Goldfields GMB grew 5% organically.
We continue to see long term upside in the secular growth of online real estate sales in the government market is the increased participation deliver superior value to communities and are easier to administer versus in person courthouse sales.
We are currently piloting new government real estate programs in a number of regions, including Oklahoma, Louisiana, Pennsylvania, and Florida, which will drive long term growth in our real estate vertical.
Direct profit in our core Gov deals marketplace.
Through at a higher 9% rate organically over the prior year period, as we continued to drive economies of scale in our core Gov deals marketplace, which has delivered strong results for our sellers and a broad range of asset categories.
Helping us grow the number of new accounts and assets listed by double digit percentages organically during Q3.
Recent notable wins include Baltimore County, Maryland Fleet.
Maybe Apple is Minnesota fleet.
In St.
San Luis Obispo County, California.
Near term priorities and our Gov deals business include the release of our next generation marketplace, which will enhance the buyer experience with improved search navigation and bidding which in.
Turn will improve recovery rates realized by our sellers.
We will also continue to expand and improve our fleet business with the addition of value added services to improve the quality of asset listings and management of client logistics needs.
Our CAG segment, GMB grew 14% organically to $48 $2 million and direct profit grew by 27% organically year over year in the quarter as we successfully executed numerous high value transactions for our clients.
Across the globe.
We remain the most trusted market maker for industrial capital assets and have a strong pipeline and our biopharma energy consumer packaged goods semiconductor and aerospace manufacturing verticals.
Our heavy equipment fleet.
Category grew.
<unk> more than.
30% organically during the quarter and continues to make progress growing sign contracts, new sellers transacted opportunities and net new revenue.
<unk> wins include several national accounts with strong upside potential.
Finally, our machining segment continues to grow its revenue direct profit in the mid teens organically with enhanced lead traffic more equipment categories continued growth of our <unk>.
Storefront product and financing services with third parties.
We continue to invest in the expansion of our machinery business and believe our machinery platform offers customers cost savings and convenience that are superior to other solutions.
In conclusion, we.
We are focused on executing.
Multiple drivers to create value for our shareholders over time.
We continue to make multiyear investments in growing our market share.
Enhancing our tech platform and.
And expanding our brand awareness to drive long term growth.
Our results will benefit from the continued normalization of supply chains.
And our leverage of the fixed investments we've made in operational capacity.
Our capital efficient business with strong operating cash flow.
Approximately $106 million in cash with zero financial debt.
Provide us with ample financial flexibility to execute our plans.
In closing we thank our team members across liquidity services for the dedication to our mission to power the circular economy.
The benefit sellers buyers and the planet.
I'll now turn it over to Jorge for more details on the quarter.
Good morning.
For the fiscal third quarter <unk> set a new record.
$334 million in revenue grew 16% year over year with our retail segment sustaining strong volume.
Following its traditional fiscal second quarter seasonal peak.
Our flexible service offerings continued to drive additional access to recurring flows of merchandise to new and expanded seller programs.
In addition, our <unk> segments traditional fiscal third quarter seasonal peak included record participant activity at our Gulf deals Dot com marketplace and improved availability of vehicles for sale.
While low U S real estate foreclosure levels and delayed initiation of real estate government auctions.
Offset our core Gov deals gains.
Our consolidated results included GAAP.
<unk> of 'twenty one.
non-GAAP adjusted EPS of <unk> 48.
non-GAAP adjusted EBITDA of $13 $3 million, tying our highest quarter results in nine years.
Our ratios of revenue per <unk> and adjusted EBITDA for the total of our segment's direct profits were 24% and 56% respectively as indicated in our prior guidance.
Our adjusted EBITDA grew faster than our total direct profit as we achieved 40% for our rule of 40 in this third quarter reflective of the potential of our business model.
We generated $10 million in cash flows from operations during the quarter and used $4 $2 million to repurchase 345000 shares.
We ended the quarter with $105 $9 million in cash cash equivalents and short term investments.
We have zero debt and $25 billion of available borrowing capacity under our credit facility.
Recapping and comparing segment's results.
From this third quarter to the same quarter last year.
Our retail <unk> segment was up 20% on <unk> up 20% on revenue and up 12% on segment direct profit.
Reflecting an increase in recurring product flows from new and expanding client programs.
That improving recovery rates due to reduced availability of excess inventory in the broader market that had accumulated forum retailer supply chain challenges last year.
An increased mix of purchase model transactions drove a lower year over year segment direct profit margin as a percent of revenue despite improved recovery rates sequentially.
Our CAG segment was up 14% on <unk>, 15% on revenue of 27% of segment direct profit led by its industrial and heavy equipment categories.
And strong recovery on purchase transactions.
Messenia revenue was up 14% and its segment profit was also up 14%, reflecting continued increase in subscriptions.
Despite the record marketplace activity for personal property across our legacy Gov deals business and <unk> Dot com marketplace.
Including improved availability of vehicles, our Gov deals segment was down 4%, reflecting a lower volume of real estate properties made.
Made available for auction with longer time to come in converting prospects to online auctions and the new prospects releasing property volumes for auction.
Revenue in direct profit for the Gov deals segment for.
Each up 4% as the volumes increase in key categories.
<unk> combined with pricing improvements.
As it remains as a reminder.
Bid for assets real estate transactions are lower take rate than traditional gov deals due to the large <unk> per transaction.
And has the resulting effect of a lower revenue to <unk> ratio.
Yet similar direct profit margin on revenue.
GAAP net income for the third quarter was $6 5 million.
Resulting in the diluted GAAP earnings per share of <unk> 21.
And compared to <unk> 50 per share last year, which reflected the 35 gain from the bid for assets earn out fair value adjustment last year.
non-GAAP adjusted EPS for the third quarter was 28 <unk> up from 21 in the same quarter last year.
non-GAAP adjusted EBIT EBITDA of $13 $3 million this quarter was up from $11 $9 million in the same quarter last year.
Reflecting our growth initiatives, partially offset by year over year increases in sales marketing technology and operations expenses to support market share expansion diversification and marketplace enhancements.
Our fiscal fourth quarter 2023 guidance range is expected to be above last year for <unk> in adjusted EPS and consistent with last year for adjusted EBITDA.
Our fiscal fourth quarter outlook for <unk> follows our seasonal high fiscal third quarter for Gov deals and.
The strong retail third quarter.
We currently anticipate our fourth quarter consolidated revenue as a percent of <unk> to continue in the mid 20% range, reflecting our mix of business and expected products sold.
With our segments direct profits in total as a percent of revenue in a range similar to our recent direct margin percent and slightly up over the same quarter last year.
We anticipate continuing to invest in our sales and technology initiatives in support of our marketplace enhancements and long term growth.
Based on our current fourth quarter guidance, our total year fiscal 'twenty three 2023.
As expected to achieve a record annual GNP and the highest annual adjusted EBITDA in nine years.
Management guidance for the fourth quarter of fiscal year 2023 is as follows we expect <unk> to range from $290 million to $315 million GAAP net income is expected in the range of $4 million to $6 $5 million with a corresponding GAAP diluted earnings per share ranging from <unk>.
<unk> 20 per share.
We estimate non-GAAP adjusted EBITDA to range from 10 million to $13 million non-GAAP adjusted diluted earnings per share is estimated in the range of 19 to 27 per share.
The GAAP and non-GAAP EPS guidance assumes that we have 32 million fully diluted weighted average shares outstanding for the fourth quarter of fiscal year 2023.
Thank you and we will now take your questions.
Thank you we will now begin the question.
Hi, Mike.
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Yeah.
Your first question comes from the line or Gary.
Now.
Some bearing Henry hedge Gary. Please go ahead.
Hey, good morning, Bill and Jorge.
<unk>.
Jorge did you mention I didn't.
Didn't see this in the press release for what we're consignment sales as a percentage of <unk> in the quarter.
Omar.
I think they may have been 87%, but it will be in our in our investor deck.
I don't have all started unusually.
I, usually usually put that in there, but it wasn't until this time <unk> no no.
So that's okay.
So bill.
A couple of things here.
With what Youre doing with these centers, where you can.
Bid on something and go pick it up I think what do you have one and one in Phoenix and one in Pittsburgh as that rider.
Yes.
We have we have Phoenix.
Cincinnati.
And we will be as we've discussed in past quarters.
Yes.
Rolling out the capability at our other U S distribution centers over time.
Can you give us some idea of.
Your wishlist by the end of fiscal 'twenty for how many of these you may want.
I would say four to six.
Okay, this really maps to consumer behavior, where.
The higher percentage of consumers are continuing to buy.
High value items for the kitchen.
For the home the backyard.
Such as lawn and garden equipment building tools.
Smart appliances.
Hum.
Home theater, and electronics and many of these items are.
Bulkier, and we don't want to transport them more than necessary. So we've leveraged our.
Performance center locations with clients such that consumers can bring them back.
Regionally to these centers and then we prepare them for resale direct to consumer which reduces trans costs handling cost increases recovery, we're still using the same online auction platform and methodology would create a competitive landscape for purchasing these items and it's really a win win win for sellers.
Wind for buyers and we certainly reduced carbon footprint and cost for the retail supply chain.
Okay and can some of the I mean, it looks like your sales and marketing as a percentage of revenues kind of jumped up.
Sequentially and was up strong year over year is some of that attributable to what youre doing with each of these new sites or what exactly are you spending.
I would say that's less about the sites and more about our push to continue to expand market share and we're all Canadian we're feeding some really interesting businesses Gary.
Heavy equipment fleet business, which is growing over 30% organically just calls for investment people like our service offering.
Spanning into larger accounts, we would like that very much a retail growing 20% organically as a direct consequence of our ability to.
Identify acquire and manage large enterprise accounts and a variety of ways self directed listings on our marketplaces.
For our managed offerings, which is good.
Things like our multichannel sales through all sorts of deals.
So we do see interest and so we want to be out telling our story. The marketing investment includes demand generation programs thought leadership pieces. Most of that's digital but we still see a presence at industry conferences conferences have come back as you know.
We do like to do.
And we see each other and have these fireside chats and industry thought leadership panels, and we're very present in those channels as well. So we have made that investment. There is an increase you can see in the P&L, but it's paying off for us and we like the longer term growth that will be derived from that investment.
Okay, and then lastly, you talked about piloting new government real estate programs.
Or are these just new business that you've signed up or are there new asset categories that they're starting to sell.
In terms of real estate for government agencies.
These are efforts that relate to our.
Patiently and persistently working with.
In this instance, government real estate Sheriff associations.
Policymakers to get laws passed to pilot these new online sales programs sort of jurisdictions that I mentioned places like Oklahoma and Louisiana, We have changed loss and we're kicking off new virtual sales programs initially with <unk>.
An early adopter.
It could be one county, and then with that evidence and it just like all deals begins to radiate outward and this is a long term effort.
We reflect on our our Gov deals business model, we've been asked this.
For over 15 16 years.
Fluency and policy decisions and we like the.
The businesses that can.
Ignite.
Transformation in digital adoption and the law of compounding begins to hold one local.
Sponsor tries it has good results then adjacent municipalities buy into it and then you can continue to grow the buyer base and just as a reflection of that.
Over about 16 years, we've grown the GMB and our Gov deals marketplace by a factor of <unk>.
<unk> 15 times 15 times. So we know that there is a lot of efficiency and transparency that comes from moving things online and we believe that real estate category does lend itself to those same attributes by moving it online.
Okay. Thank you very much.
Please hold for your next question.
Yes.
Okay.
The next question comes from the line of George Sutton from Craig Hallum. George. Please go ahead.
Thank you our first guys I was in Pittsburgh last weekend, they would not take kindly to being compared with Cincinnati or confused for Cincinnati.
Nice results Congratulations Bill I wondered if you could give us a little bit more detail on the nextgen marketplace, what what sort of things will will buyers and sellers notice.
And in terms of the difference and what kind of impact do you think it can have sure. So this is a an.
An extension.
The investment that we've made in our all surplus aggregated marketplace to Gov deals, which has many loyal customers George over many years, but it was time for an upgrade both from the tech stack perspective, and from the user interface perspective.
There are assume any automation tools and features and all surplus that we have.
Great anticipation to extend to the Garfields marketplaces, such as machine driven recommendation engines. So when a buyer comes in or prospective bidder comes in we will begin to track click stream, we will certainly tap into any data we have from your registration profile on everything you viewed in the past.
Everything you've been on the past certainly everything you've bought in the past and that will prioritize whats youre seeing and to make it much more effortless for you is the user.
That's one feature or another feature is just more.
User friendly search type ahead features.
Really this is bringing up deals.
Parity with.
Other marketplaces that we operate in that again reduces the path to purchase.
In total these changes will improve better participation, which we think lends to hire GMB.
Just through improved engagement.
There are lots of other features very clean our mobile responsive design.
The category landing pages that can be more customized.
We open up opportunities to do.
Sure.
Multimedia.
Description information.
Easier to manage easier to see.
So ultimately.
Buyers can spend more time on the most relevant assets and ultimately, we unlock higher recovery rates and higher GMB for our sellers.
Perfect just.
I wanted to make sure I fully understood on CAG, you mentioned do you have a strong pipeline and new projects across a number of verticals I wondered if you could be more specific as to where youre seeing that strength.
Sure.
We know that there is sort of generational focus on the semi con industry lots of manufacturers sunsetting.
Factories in certain markets and opening factories in other markets, we have a good legacy client relationship there thats driving.
Some growth energy has been good to us.
A year of focus on supporting energy supply chain clients.
There's a lot of innovation happening a lot of decision making about.
Rotating portfolios from carbon heavy too.
EV.
And other alternative energy types of that that's a market that requires.
Access to liquidity.
To help them to affect that transition over time.
Consumer packaged goods global business.
Constant.
Focus on the right products at the best cost per unit lots of <unk>.
Activity around.
Plant assets vehicle fleet assets, I think we had a record number actually.
Vehicle asset sold out of the Cat <unk> business, which is tied to CAG.
Clients in many cases upgrading tweaks too.
Sure.
Cleaner burning fleets natural gas fleets.
Trying to introduce.
Yeah.
Felipe.
Mobility.
Tracking.
Equipment and devices and we help the clients exit.
Legacy assets as they make those investments and then over time.
Continue to find that waterfall technology drive future GMB.
So.
The interesting thing about <unk> is we touch really every industry vertical it's sort of a constant cyclical marketplace, we're always catching.
<unk> assets and any industry that is undergoing transformation and change.
And those are the some of the highlights driving the Caddo pipeline.
Perfect just one other question in thinking about this in a marketplace modality.
Youre registered buyers in your auction participants were both up 5% year over year. Your number of transactions were flat as you're thinking of investing in the business does that move you too.
Try to really focus on the supply side is that how you think of building out in the marketplace.
You hit the nail here it is a two sided marketplace and you need both we have.
As it relates to our marketing and sales investment.
Certainly lead to increasing brand awareness for our services.
Underlying not only the financial value proposition, but the.
Environmental impact value proposition, taking a lot of complexity at the hands of our customers align it to be more measurable and managing manageable on in terms of tracking assets throughout the upper funnel before it hits, our marketplace lending clients and redeploy those assets where needed.
And then selling them in an orderly fashion when their surplus to their needs so providing things like our assets.
Software to industrial manufacturing companies around the world has been very well received.
Giving the metrics that they can report up to the board and shareholders and how theyre being a better steward has the disposal, reducing waste, reducing scrapping of equipment and material.
We also partner with our government clients.
To raise awareness about.
Reducing their footprint.
Being.
A leader in smart asset management and disposition using the digital channel helps remove.
Lot of.
Physical in person events, which required stores require people to drive them.
These in person events, we've been a leader in <unk>.
<unk> managed <unk>.
Higher volume higher value asset sales with a smaller footprint and they like that very much. So yes. Those are things that help us drive thought leadership and which ultimately attract supply.
Of course, we are.
Always continue to focus on asset promotion with our buyers.
Innovation.
With marketplace enhancements, which I just talked about Gov deals.
We're doing more I think in social channels to engage with buyers.
<unk> fuels channel is internet channels.
Process from digital to in person.
Tremendous.
Word of mouth when people can find great deals in their local marketplace.
We do a lot of social proof.
The physical.
At this point of physical pickup we interview our customers and they express.
Bill.
Faction of finding valuable items at a great price and in an inflationary environment, that's well received.
And then we share that are digitally and so you get a viral bump when you talk to people and you can share that out. So we're working on both sides, but I would tell you enterprise sales is probably the majority of the increase in sales and we're using that in all segments.
Retail and Gov deals are all benefiting from.
The expanded capacity and our sales efforts.
Bill. Thank you for the details appreciate it.
Our pleasure.
Thank you.
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