Q4 2023 Liquidity Services Inc Earnings Call

December 7, 2023

Yeah.

Speaker 1: Hello and welcome to Liquidity Services Inc. fourth quarter of fiscal year 2023 for our Natural Results Conference call.

Hello, and welcome to the liquidity services, Inc. Fourth quarter of fiscal year, 2023 financial results conference call.

Speaker 1: My name is Tawanda and I will be your operator for today's call. Please note that this conference call is being recorded.

My name is to Wanda and I will be your operator for today's call.

Please note that this conference call is being recorded.

Speaker 1: At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

Speaker 1: On the call today are Bear Engrich, Liquidity Service Chairman, Chief Executive Officer, and Jorge Sallea, Executive Vice President and Chief Financial Officer.

On the call today, albeit angry liquidity service Chairman Chief Executive Officer.

And Jorge Celaya, its executive Vice President and Chief Financial Officer.

Speaker 1: They will be available for questions after their prepared remarks.

They will be available for questions after their prepared remarks.

The following discussion and responses to your questions regret reflect liquidity service management views as of today due some of the seventh 2023.

Speaker 1: The following discussions and responses to your questions reflect liquidity service management views as of today, December the 7th, 2023, and will include forward-looking statements. Actual results may differ from the previous discussion.

It will include forward looking statements.

Actual results may differ materially.

Speaker 1: Additional information about factors that could potentially impact the 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 .

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.

Speaker 1: 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.

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.

Speaker 1: During this call, liquidity service management will discuss certain non-GAAP financial measures and its press release and filings with the SEC, each of which is posted on its website. And you will find additional disclosures regarding these non-GAAP measures, including the reconciliation of these measures with the comparable GAAP measures as available.

During this call liquidity service 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 and you will find additional disclosures regarding these non-GAAP measures, including the reconciliation of these measures with the comparable GAAP measures is available.

Speaker 1: Liquidity service management also use certain supplemented operating data as a measure of certain components of operating performance, which they also believe is useful for management and investment.

Liquidity service 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.

Speaker 1: The supplemented operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results.

The supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results.

Speaker 1: At this time, I will turn the presentation over to Liquidity Services Chairman and CEO , Bill Ingram. You may begin.

At this time I will turn the presentation over to liquidity services, Chairman and CEO Bill angry you may begin.

Good morning, and welcome to the Q4 earnings call I'll review, our Q4 performance and the progress of the business segments.

Speaker 2: Good morning and welcome to our Q4 earnings call. I'll review our Q4 performance and the progress of our business segments. And next, Jorge Celaya will provide more details on the quarter.

Hey.

Goodbye.

Details on the quarter.

We concluded our fiscal year 2023, with a strong fourth quarter results setting a new annual record for G. M D $1 $2 billion and delivered our highest full year non-GAAP adjusted EBITDA performance since 2014 and doing so with an increasingly diversified business.

Speaker 2: We deliver these gains while also investing for the future in sales, marketing and technology areas and absorbing increases in wages due to the inflationary environment.

These gains while also investing for the future in sales marketing and technology areas and absorbing increases in wages to the inflationary environment.

I'm pleased that we completed 250000 transactions during the fourth.

Fourth quarter, which puts us on a run rate of 1 million completed transactions per year.

Continued tightening by the fed during fiscal 'twenty, three and persistent inflation provided a difficult business climate during the past year. However, our exposure to multiple industry sectors and our flexible service model help liquidity services delivered growth in this challenging environment in particular for the full year fiscal 'twenty three.

Our CAG and retail segments grew direct profit, 11% and 7% year over year organically, respectively. Our resilient business model continues to deliver strong free cash flow.

Speaker 2: Our resilient business model continues to deliver strong free cash flow, and we continue to repurchase shares as we see opportunity in our long-term prospect.

To repurchase shares as we see opportunity in our long term prospects.

Speaker 2: Together, it's allowed us to deliver financial results at the high end of our Q4 guidance range and deliver 37% year-over-year growth in our adjusted EPS. Let's take a closer look at our

Together this allowed us to deliver financial results at the high end of our Q4 guidance range and delivered 37% year over year growth in our adjusted EPS.

Let's take a closer look at our individual segments.

Speaker 2: During Q4, our retail segment GMV grew 18% organically to $74.7 million, a new quarterly GMV record, and segment direct profit grew 4% year-over-year, driven by our flexible offerings, our reliability, and high level of service to customers.

During Q4, our retail segment GMB grew 18% organically to $74 $7 million, a new quarterly G&A record and segment direct profit grew 4% year over year, driven by our flexible offerings, our reliability and high level of service to customers.

We are successfully elevated awareness of the liquidity services brand admission about retail supply chain decision makers policymakers and partners as the most trusted and reliable solution for the management and disposition of return consumer goods. We've continued our momentum by adding new programs are important clients and the number of.

Consumer categories.

Fueled record growth and the supply side of our retail business.

Quickly moving to grow our buyer base to keep pace with this trend and the changing mix of goods, reflecting changing consumer sentiment.

In the short term as reflected in our guidance, we will experience some growing pains as consumers have shifted some of their discretionary dollars away from high value goods in a challenging economy in the longer term, we have a once in a generation opportunity to consolidate and grow our position as the market leader. According.

We continued to invest in our multichannel buyer base to drive higher recovery, including expanding our all surplus deals marketplace, which provides consumers direct access to retail products at compelling values in support of this $100 million GMB growth opportunity, we have expanded our all surplus deals consumer groups.

So I pick up service to our Indianapolis facility during the quarter and now offer the service and five LSI distribution center locations throughout the U S to provide outstanding reach for a retail industry partners and buying customers.

During Q4, our Gov deals segment, <unk> increased 14% year over year to $184 million driven by continued expansion of our market share and normalization of the vehicle supply chain.

In general.

As promised we successfully rolled out our new modernized Gov deals marketplace platform, which provides an enhanced by her experience with improved search navigation bidding and a mobile responsive design. We executed this initiative with minimal disruption to our golf deals customers and expect these.

Enhancements to improve recovery rates realized by our sellers. We also continued to expand and improve our gold deals fleet business with the addition of value added service to improve the quality of asset listings.

Management of client logistic needs.

During Q4, our CAG segment direct profit grew 9% year over year as strong sales in our Biopharma energy and heavy equipment categories.

Offset a drop in <unk> from the prior year's large international spot purchase transactions.

We expect continued future growth indicated segment as we remain the most trusted market maker for industrial capital assets and had a strong new business pipeline in particular, our CAG heavy equipment fleet category grew GMB more than 30% during Q4.

Continue to make progress.

<unk> signed contracts, new sellers and net new revenue.

Recent wins include several national accounts with strong upside potential positioning or commercial heavy equipment category.

To be a consistent high growth high margin line of business in support of this growing opportunity.

Added significant new talent to our heavy equipment business development team to expand awareness of our solution and continued scaling of the heavy equipment category.

Finally, our machinery segment continues to grow its revenue and direct profit in the mid teens organically with enhanced lead traffic and more equipment categories. Today. The machining of marketplace is over $3 8 million active used equipment listings, one 4 million monthly buyer visits.

Nearly 4000 paying customers from over 100 countries.

We continue to invest in the expansion of it.

This high margin recurring revenue subscription business through new service offerings planned geographic expansion into Asia during fiscal 'twenty, four and several product enhancements.

In conclusion, we continue to make multi year investments to grow our market share technology platform and brand awareness to drive long term growth for liquidity services shareholders. Our results will benefit from our leverage and fixed investments we've made in our expanded operational capacity.

Our capital efficient business with strong operating cash flow.

Approximately $118 million in cash and zero financial debt today.

Together provides us ample financial flexibility to execute our plans in closing we thank all of our team members across liquidity services for their dedication to our mission to power the circular economy benefits sellers buyers and the planet.

Ill turn it over to Jorge for more details on the quarter.

Good morning.

For 2023 fiscal year, we set a record for annual <unk> at $1 2 billion.

Up 5% and grew revenue to 314 $45 million up 12%.

Our GAAP net income of $21 billion was up 33% when excluding the impact of.

The nonrecurring prior year gain from the bid for assets earn out liability.

We're down 48% overall pizza that nonrecurring gain last year.

non-GAAP adjusted EBITDA was up 7% to $45 9 million the highest single year total in nine years.

As we enter our 2020 for fiscal year.

Each of our segments looks to drive incremental market share and produce year over year growth.

Some comments on our quarterly results.

We completed the fourth quarter of fiscal year, 2023, with $315 $6 million in <unk> up 11% from $283 3 million in the same quarter last year.

Our fourth quarter revenue grew 6% to $80 million consistent with our directional guidance last quarter.

From $75 2 million in the same quarter last year.

Our fourth quarter consolidated results included GAAP earnings per share of <unk> 47.

non-GAAP adjusted EPS of <unk> 26, and.

non-GAAP adjusted EBITDA of $12 8 million.

We generated $14 $7 million in cash flows from operations during the quarter and ended the quarter with $118 2 million in cash cash equivalents and short term investments.

We continue to have zero debt and $25 million of available borrowing capacity under our credit facility.

Specifically comparing segment results from this fiscal fourth quarter to the same quarter last year, our industrial segment was up 14% on GMB.

13% of revenue and 13% on segment direct profit driven by increased availability of vehicles, which more than offset the broader market trend of reduced per unit vehicle prices.

Our <unk> segment was up 18% on <unk>, 15% of revenue and 4% of segment direct profit, which.

This reflected an increase in product flows compared to last year from new and expanding client programs.

While the overall product mix, we received in the quarter drove a lower year over year segment direct profit margin as a percentage of revenue.

Our CAG segment was down 4% or <unk>, 20%.

47% of revenue up 9% of segment direct profit increases.

Increases.

Global Biopharma energy.

Heavy equipment categories, mostly offset as bill mentioned, the prior year's large international spot purchase transactions.

Messenia revenue was up 15% in its segment direct profit was also up 15%, reflecting continued increase in subscriptions.

Our segment's direct profit improvements resulted in GAAP net income for the fourth quarter of $6 3 million.

Resulting in the diluted GAAP earnings per share of <unk> <unk> compared to <unk> 45 per share last year, where last year again included a 14th nonrecurring gain from the bid for assets earn out fair value adjustments.

So non-GAAP adjusted EPS for this fourth quarter was 26% up from 19% in the same quarter last year.

Compared to last year non-GAAP adjusted EBITDA of $12 $8 million. This quarter was up from $12 3 million in the same quarter last year, reflecting our growth partially offset by year over year increases in sales and marketing and in technology and operation expenses to support our market.

Sure expansion continued diversification and marketplace enhances.

Our profitability margins, especially adjusted EBITDA as a percent of direct profit.

Historically as higher during the second half of our fiscal years.

Our fiscal year 2020 for planning calls for year over year growth with our typical sequential consolidated improvements in top line and margins expected for the second half of 2024 compared to the first half.

The first quarter of fiscal year 2024 guidance reflect that our <unk> segment is currently receiving a higher volume of lower value products than last year with a soft broader consumer demand for retail goods.

In addition supply of some client specific higher value products for sale on a consignment basis is currently pacing slower than last.

The same quarter last year.

As a result, while our.

While our first fiscal quarter of 2024 guidance is expected to continue to be above last year for <unk>.

Our guidance ranges for GAAP EPS non-GAAP, adjusted EPS and adjusted EBITDA for the first quarter are expected to be consistent year over year to download.

Mainly driven by the current mix of supply at our retail segments.

Also as a reminder, the prior year fiscal first quarter results included a $900000 nonrecurring benefit from our completed client program.

We currently anticipate our first quarter consolidated revenue ratio as a percent.

Of GMB declined slightly to the prior year, mainly due to mix, but continued to be in the mid 20 percentage range and our segments direct profit as a percentage of revenue.

Consistent with the same quarter of last year.

We are continuing to invest in our sales and technology initiatives in support of our marketplace enhancements.

And long term growth.

Madison guidance for the first.

Quarter of fiscal year 2024 is as follows.

We expect <unk> to range from $295 billion to $325 million.

GAAP net income is expected in the range of $1 5 million to $4 million with a corresponding GAAP diluted earnings per share ranging from <unk> 12 per share.

We estimate non-GAAP adjusted EBITDA to range from $7 million to $10 million.

non-GAAP adjusted diluted earnings per share is estimated in the range of 12 to 19 <unk> per share.

The GAAP and non-GAAP.

Guidance assumes that we have 32 million fully diluted weighted average shares outstanding for.

For the first quarter of fiscal year 2024.

Thank you and we will now take your questions.

Thank you.

We will now begin the question and answer session. If you have a question. Please press star one one and wait for your name to be announced.

If you wish to remove yourself from the queue. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Gary pressed the P&L with Barrington Research. Your line is open.

Hi, Good morning, Bill and Jorge.

A number of questions here.

First of all.

I didn't see anything in the narrative in the release about share repurchases did you repurchase any shares this quarter.

Hello, Let me just make sure make sure you understand we do have an open authorization.

For repurchases.

Jorge can answer.

What was it what was executed believe we've tapered.

The purchases.

Yes.

There was.

There was not very little this quarter.

Okay.

Why was that what that with the cash that Youre building.

Well.

Two we call use of cash from the company's perspective.

We're finding some growth and we also have some ideas around partnerships.

Inorganic.

To support our strategy so.

<unk> got an active acquisition pipeline.

And of course, we do.

If you look back beyond this quarter and here, you'll see we spend.

Meaningful dollars on repurchase and that will continue to be one use of capital. So I wouldnt overweight the last three months.

Okay, and then I also didnt see anything of consignment sales I guess as a percentage of <unk> in the narrative what was it in the quarter.

I think we're about 87% of the GMB is under the consignment model up from roughly 82% in the prior year quarter.

Okay, Great and then just to understand some some things here with.

First of all with what's going on in the Rs.

The retail segment.

It looks like the direct profit.

Move down.

Relative or is not growing to the extent that your top line is growing on revenues and <unk>.

Is that a function of some of the investments that youre, making in all surplus.

Or is there something else going on there that is hitting the margin.

That would make the direct profit not grow as dramatically as the revenue on GM.

Yes.

You look at the dynamic in retail.

Two sided marketplace and we've done an outstanding job.

Positioning liquidity services as the.

Sort of industry wide solution for managing and selling returns. So we're getting record inbound volume now that volume comes in in a variety of ways. We have some consignment sell in place volumes, which is a low touch low service and therefore lower fee.

<unk>.

As I just mentioned, we've been growing our consignment business overall, we've been growing it within retail. So we have some volume Gary that's coming in with lower take rates, which means lower direct profit as a percentage of JV, but high high gross margins on the revenue collected so that's one dynamic.

I think the other dynamic and you've probably heard from many industry participants about the consumer is tap the brakes a bit on purchasing higher ticket items. So the flow of goods coming into liquidity services reflects that there is a lower mix lower value mix.

And the basket of returns.

It's back to e-commerce retailers and Omnichannel retailers, we saw.

Still make good money on that its just not as attractive as where we were one year ago and so we're working through that but the high quality problem.

If you recall at that is that we've.

We've got a ton of interest in our service you got a ton of interest in people wanting and needing solutions and it wouldn't surprise us if there is.

And if it can amount of product that doesn't sell through at the rate that retailers and E. Commerce players would like during this holiday season, so that sets up.

A strong sort of post holiday dynamic for us to help our clients move.

All ranges of goods in their inventory.

Okay. Thank you and then just the last question and I'll jump off.

When youre talking about.

Your guidance for Q1, it looks like your.

Guidance for <unk> is going to be higher than it was last year.

Yet the adjusted EBITDA.

On the low end is below last year and on the high end is just about at last year and as I look at your income statement and you are talking about investments in growth and stuff like that.

<unk>.

Is most of that.

Growth in expenses is going to be on the sales and marketing line because it looks like at least for the last two quarters, you were running at close to $27 million aggregate.

Ken I'm, just trying to get an idea of where that higher level of expenses is going to come in in Q1, possibly Q2, and then therefore the leverage we would start seeing would be Q3 and Q4, because you obviously do not need to add as much to the sales and marketing line in terms of personnel.

I think you are accurate in calling out an increase in.

Capacity in sales.

And technology.

I think marketing we've been fairly disciplined this is a company that's never been.

Sort of a hyper marketing driven company in terms of customer acquisition costs very efficient, but we see great opportunity in heavy equipment, and we've gone and gotten some industry talent.

It's available and really believes in this asset light tech enabled marketplace. So we're we're growing that business really well and adding some capacity Gary that will provide leverage in the second half there.

We spent a decent amount of money and time preparing gov deals can be upgraded after essentially two decades and.

Have some now AI driven marketing capabilities within Gov deals, which is a $700 million G&P marketplace. So if we can just bumped recovery by 10% very high pay offs in the second half of the year. So we did step up a little bit there.

We're talking about taking machines.

Two eight.

Asia.

And that market, including China.

<unk> than the U S and Europe, combined and that's a 90% gross margin business.

The fall through of incremental revenue there is like 50, 560%.

So we set up an office.

In China to expand classified listings and we provide financing now on this unit from buyers of used equipment. We also rolled out financing for buyers of equipment on Gov deals. So.

We put some bets in some I think very rational investments into the model in an inflationary environment I would add and we've digested that.

But I think we'll get good leverage on those investments in the second half.

In the near term.

As we move through executing this strategy and the growth that's out there.

Are you using your balance sheet to finance or are you just facilitating a third party transaction with the lender.

The latter we're not we're not a direct lending nor do we want to be but that referral to a broader ecosystem of financial institutions is very healthy for us.

They are very complementary.

Okay. Thank you very much.

Thank you.

Please standby for our next question.

Our next question comes from the line of George Sutton with Craig Hallum. Your line is open.

Thank you Bill you made a very compelling comment at the beginning about.

Once in a generation.

Chance to consolidate I believe you mentioned the retail portion of the space can you just go into more detail on what you were referring to there.

Yes, I think.

Our marketplace dynamic.

Benefits when supply and demand coalesce around that set of services and the buyer experience and we are.

Seeing a lot of interest in our service we're getting.

Additional awards and programs to use our services.

And we're doing a great job in a multi what we call multi channel.

Engagement of the buyer community so from truckloads to pilots to direct.

Consumer.

Buyer demand.

Coalescing under our platform I think thats very valuable for the industry and at the same time to think a lot of smaller players that.

Our being disintegrating essentially.

Not being able to perform at scale and going out of business. So I think those dynamics happen during a cycle like a fed tightening cycle. We saw this back in 2008.

And really at the time, we started our business in the Dot Com Mania, and then crash.

No.

Those that stand tall and deliver on their promises that can deliver scalable marketplace experiences, which does take long term investment it's not inexpensive we have.

Great marketplace that has been enhanced we have got a national distribution Center network really international Canada, and the U S. But now has both <unk> and direct to consumer online sales channels.

And pre and post sale.

Logistics support that's very valuable to the industry and I think the industry has been dealing with excess capacity for some period of time.

And a lot of tightening of course, among retail players reduction in warehouse footprint.

Reduction in corporate overhead and so we stepped into that and provide a turnkey one stop solution to manage and sell.

<unk> returns and excess inventory so that's setting the stage for what we believe is an opportunity to consolidate our position.

And Thats the long term north star of any marketplaces, you want to be that indispensable.

Very well integrated solution with sellers and buyers and Thats, what we have in front of us.

And it sounds if I'm hearing you correctly youre doing.

A fair bit of that just through natural competition.

You also could end up becoming an acquirer of another entertainment spaces.

Effectively what I mean.

I mean, I think thats, we get to see just about everything that's available in this marketplace because people recognize our role and I think we have a number of very good healthy partnerships.

But I wouldn't rule out.

M&A over the course of time.

Just another historical question are putting this current environment into context, you've seen.

Cyclical dynamics, where retail buyers.

Start to buy lower price items, given the economic situation can you just give us any sort of context or sense of how long you see this dynamic playing out.

Well it has been playing out over the last 12 months and I think people <unk>.

Generally have done a better job managing their personal balance sheets, but I think they are.

A little guarded I think the lower end is probably disproportionately.

<unk> pulled back from buying goods and either due to higher cost of living.

And or trying to build that.

Buffer for concern that maybe there is a.

Hard landing in 2024.

So theyre not.

<unk>.

Sanguine about buying.

<unk> or redoing, an entire living room or doing.

Higher.

Outdoor entertainment space and I think we're seeing upper funnel activity and the results from companies like Lowe's and home depot target and Walmart and even Amazon commentary yesterday.

Suggest that theres been a shift down in sort of average.

<unk> consumer.

Purchases and that's fine.

Whatever it is.

We'll be able to liquidate it just means that.

The <unk>.

Higher end of the market has softened.

And.

That may mean that some retailers are probably long on some product that may not.

Move as well during the holiday season and on the other side of that that's an opportunity for liquidity services.

But we're very focused on being the most efficient cost efficient and scalable provider and we can so whenever it comes through but there is no doubt been a tempering and consumer behavior around the purchase of <unk>.

Woods.

Understood. Okay. Thank you for your answers appreciate it.

Thank you.

Yeah.

We have no further questions in the queue.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Hello, and welcome to the liquidity services, Inc. Fourth quarter of fiscal year 2023 financial results Conference call.

My name is to Wanda 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.

On the call today are Bill Anglic liquidity service, Chairman Chief Executive Officer.

And Jorge Celaya Exec.

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 service management views as of today December seven 2023 and 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 filings with SEC.

And 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 is good.

Enclosed liquidity services' financial results as well as metrics and commentary on the quarter.

During this call liquidity service 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 and you will find additional disclosures regarding these non-GAAP measures, including a reconciliation of these measures with the comparable GAAP.

<unk> measures is available.

Liquidity service management.

So use certain supplemental operating data as a measure of certain components of operating performance, which they also believe is useful for management and investors.

The supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results.

At this time I will turn the presentation over to liquidity services, Chairman and CEO Bill angry you may begin.

Good morning, and welcome to our Q4 earnings call I will review, our Q4 performance and the progress of our business segments and next Jorge Celaya will provide.

More details on the quarter.

We concluded our fiscal year 2023, with strong fourth quarter results setting a new annual record for <unk> of $1 2 billion and delivered our highest full year non-GAAP adjusted EBITDA performance since 2014 and doing so with an increasingly diversified business we.

We deliver these gains while also investing for the future in sales marketing and technology areas and absorbing increases in wages due to the inflationary environment.

I am pleased that we completed 250000 transactions during the.

Fourth quarter, which puts us on a run rate of $1 million completed transactions per year.

Our CAG and retail segments grew direct profit, 11% and 7% year over year organically, respectively. Our resilient business model continues to deliver strong free cash flow.

<unk> to repurchase shares as we see opportunity in our long term prospects.

Together this allowed us to deliver financial results at the high end of our Q4 guidance range and delivered 37% year over year growth in our adjusted EPS, Let's take a closer look at our individual segments.

During Q4, our retail segment GMB grew 18% organically to $74 $7 million at new quarterly G&A record and segment direct profit grew 4% year over year, driven by our flexible offerings, our reliability and high level of service to customers.

We have successfully elevated awareness of the liquidity services brand admission about retail supply chain decision makers policymakers on partners as the most trusted and reliable solution for the management and disposition of return consumer goods. We've continued our momentum by adding new programs are important clients and a number of.

Consumer categories.

This is fueled record growth and the supply side of our retail business and we are quickly moving to grow our buyer base to keep pace with its trend.

And the changing mix of goods, reflecting changing consumer sentiment.

Lee we continued to invest in our multichannel buyer base to drive higher recovery, including expanding our all surplus deals marketplace, which provides consumers direct access to retail products with compelling values in support of this $100 million GMB growth opportunity, we've expanded our all surplus deals consumer groups.

So I pick up service to our Indianapolis facility during the quarter.

Now offer the service and five LSI distribution center locations throughout the U S to provide outstanding reach for our retail industry partners and buying customers.

During Q4, our Gov deals segment, <unk> increased 14% year over year to $184 million driven by continued expansion of our market share and normalization of the vehicle supply chain.

In general.

As promised we successfully rolled out our new modernized Gov deals marketplace platform, which provides an enhanced by our experience with improved search navigation bidding and a mobile responsive design. We executed this initiative with minimal disruption to our Gov deals customers and expect these.

Enhancements to improve recovery rates realized by our sellers. We also continued to expand and improve our Gov deals fleet business with the addition of value added service to improve the quality of asset listings.

And management of client logistic needs.

During Q4, our CAG segment direct profit grew 9% year over year on strong sales in our Biopharma energy and heavy equipment categories.

Offset a drop in <unk> from the prior year's large international spot purchase transactions.

Continue to make progress.

<unk> signed contracts, new sellers and net new revenue.

Recent wins include several national accounts with strong upside potential positioning our commercial heavy equipment category.

To be a consistent high growth high margin line of business in support of this growing opportunity.

Added significant new talent to our heavy equipment business development team to expand awareness of our solution and continued scaling of the heavy equipment category.

Nearly 4000 paying customers from over 100 countries.

We continue to invest in the expansion of.

This high margin recurring revenue subscription business through new service offerings planned geographic expansion into Asia during fiscal 'twenty, four and several product enhancements.

In conclusion, we continue to make multi year investments to grow our market share technology platform and brand awareness to drive long term growth for liquidity services shareholders. Our results will benefit from a leverage of the fixed investments we've made in our expanded operational capacity.

Our capital efficient business with strong operating cash flow.

Approximately $118 million in cash and zero financial debt.

<unk> provides us ample financial flexibility to execute our plans in closing we thank all of our team members across liquidity services for their dedication to our mission.

Power the circular economy, the benefits sellers buyers and the planet.

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

Good morning.

For our 2023 fiscal year, we set a record for annual <unk> at $1 2 billion.

Up 5% and grew revenue to $314 5 million up 12%.

Our GAAP net income of $21 billion was up 33% when excluding the impact of the nonrecurring prior year gain from the bid for assets earn out liability.

We're down 48% overall due to that nonrecurring gain last year.

non-GAAP adjusted EBITDA was up 7% to $45 9 million the highest single year total in nine years.

As we enter our 2020 for fiscal year, each of our segments looks to drive incremental market share and produce year over year growth.

Some comments on our quarterly results.

We completed the fourth quarter of fiscal year, 2023, with $315 6 million and <unk> up 11% from $283 $3 million in the.

Same quarter last year.

Our fourth quarter revenue grew 6% to $80 million consistent with our directional guidance last quarter.

From $75 2 million.

<unk> quarter last year.

Our fourth quarter consolidated results included GAAP earnings per share of <unk> 47.

non-GAAP adjusted EPS of <unk> 26, and non-GAAP.

<unk> adjusted EBITDA of $12 8 million.

We generated $14 $7 million in cash flows from operations during the quarter.

We ended the quarter with $118 2 million in cash cash equivalents and short term investments, we continue to have zero debt and $25 million of available borrowing capacity under our credit facility.

Specifically comparing segment results from this fiscal fourth quarter to the same quarter last year, our <unk> segment was up 14% on <unk>.

13% of revenue of 13% on segment direct profit driven by increased availability of vehicles, which more than offset the broader market trend of reduced per unit vehicle prices.

Our <unk> segment was up 18% on <unk>, 15% of revenue and 4% of segment direct profit.

This reflected an increase in product flows compared to last year from new and expanding client programs.

While the overall product mix, we received in the past quarter drove a lower year over year segment direct profit margin as a percentage of revenue.

Our CAG segment was down 4% or <unk>, 20%.

47% of revenue up 9% of segment direct profit increases.

Increases.

And it's global Biopharma energy and heavy equipment categories, mostly offset as bill mentioned the prior year's large international spot purchase transactions.

Messenia revenue was up 15% and its segment direct profit was also up 15%, reflecting continued increase in subscriptions.

Our segment's direct profit improvements resulted in GAAP net income for the fourth quarter of $6 3 million.

The resulting in the diluted GAAP earnings per share of <unk> <unk> compared to <unk> 45.

Sure last year, where last year again included a 14th nonrecurring gain from a bid for assets earn out fair value adjustments.

So non-GAAP adjusted EPS for this fourth quarter was $26 up from 19% in the same quarter last year.

Sure expansion continued diversification and marketplace enhances.

Our profitability margins, especially adjusted EBITDA as a percent of direct profit.

Historically as higher during the second half of our fiscal years.

Our fiscal year 2020 for planning calls for year over year growth with our typical sequential consolidated improvements in top line and margins expected.

I expected for the second half of 2024 compared to the first half.

In addition supply of some client specific higher value products for sale on a consignment basis is currently pacing slower than last.

Than the same quarter last year.

As a result, while our.

While our first fiscal quarter 2024 guidance is expected to continue to be above last year for <unk>.

Our guidance ranges for GAAP EPS non-GAAP, adjusted EPS and adjusted EBITDA for the first quarter are expected to be consistent year over year to download.

Mainly driven by the current mix of supply at our retail segments.

Also as a reminder, the prior year fiscal first quarter results included a $900000 nonrecurring benefit from our completed client program.

We currently anticipate our first quarter consolidated revenue ratio as a percent.

Of GMB declined slightly to the prior year, mainly due to mix, but continued to be in the mid 20 percentage range.

And our segments direct profit as a percentage of revenue consists.

Consistent with the same quarter last year.

We are continuing to invest in our sales and technology initiatives in support of our marketplace enhancements.

And long term growth.

Management guidance for the first.

Quarter of fiscal year 2024 is as follows.

We expect <unk> to range from $295 billion to $325 million.

GAAP net income is expected in the range of $1 5 million to $4 million with a corresponding GAAP diluted earnings per share ranging from <unk> 12 per share.

We estimate non-GAAP adjusted EBITDA to range from $7 million to $10 million.

non-GAAP adjusted diluted earnings per share is estimated in the range of <unk> 19 per share.

The GAAP and non-GAAP.

Guidance assumes that we have 32 million fully diluted weighted average shares outstanding for.

For the first quarter of fiscal year 2024.

Thank you and we will now take your questions.

Thank you.

We will now begin the question and answer session. If you have a question. Please press star one one and wait for your name to be announced.

If you wish to remove yourself from the queue. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Gary pressed the P&L with Barrington Research. Your line is open.

Hi, Good morning, Bill and Jorge.

A number of questions here.

First of all.

I didn't see anything in the narrative in the release about share repurchases did you repurchase any shares this quarter.

Hello, but let me just make sure make sure you understand we do have an open authorization.

For repurchases.

Jorge can answer.

That was it was executed believe we've tapered.

The purchases.

Yes.

There was.

There was not very little this quarter.

Okay.

Why was that with the cash that Youre building.

Well.

Two we call use of cash from the company's perspective.

We're finding some growth and we also have some ideas around partnerships.

Inorganic.

And support our strategy so.

We've got an active acquisition pipeline.

And of course, we do.

If you look back beyond this quarter and here, you'll see we expand.

Meaningful dollars on repurchase and that will continue to be one use of capital. So I wouldnt overweight the last three months.

Okay, and then I also didnt see anything of consignment sales I guess as a percentage of <unk> on the merit of what was it in the quarter.

I think we're about 87% of GMB is under the consignment model up from roughly 82% in the prior year quarter.

Okay, Great and then just to understand some some things here with.

First of all with what's going on in the Rs.

The retail segment.

It looks like the direct profit.

Has moved down.

Relative or is not growing to the extent that your top line is growing on revenues and <unk>.

Is that a function of some of the investments that youre, making in all surplus.

Or is there something else going on there that is hitting the margin.

That would make the direct profit not grow as dramatically as the revenue on GM.

Yes.

You look at the dynamic in retail.

Two sided marketplace and we've done an outstanding job.

Positioning liquidity services as the.

<unk>.

As I just mentioned, we've been growing our consignment business overall, we've been growing it within retail. So we have some volume Gary that's coming in with lower take rates, which means lower direct profit as a percentage of GMB, but high high gross margins on the revenue collected so that's one dynamic.

I think the other dynamic and you've probably heard from many industry participants about how the consumer is tap the brakes a bit on purchasing higher ticket items. So the flow of goods coming into the liquidity services reflects that there is a lower mix lower value mix.

And the basket of returns that generally comes back to e-commerce retailers.

Omnichannel retailers, we still make good money on that its just not as attractive.

Where we were one year ago, and so we're working through that but the high quality problem.

If you recall that is that we've.

We've got a ton of interest in our service you got a ton of interest in people wanting and meeting solutions and it wouldn't surprise us. If there is a significant amount of product that doesn't sell through at the rate that retailers and E. Commerce players would like during this holiday season, so that sets up.

A strong sort of post holiday dynamic for us to help our clients move.

All ranges of goods in their inventory.

Okay. Thank you and then just the last question and I'll jump off.

When youre talking about.

Your guidance for Q1, it looks like your.

Guidance for <unk> is going to be higher than it was last year.

Yet the adjusted EBITDA.

On the low end is below last year and on the high end is just about at last year and as I look at your income statement and you are talking about investments in growth and stuff like that.

<unk>.

Is most of that.

Growth in expenses is going to be on the sales and marketing line because it looks like at least for the last two quarters, you were running at close to $27 million aggregate.

Okay.

I think you're accurate in calling out an increase in.

Capacity in sales.

And technology.

I think marketing we've been fairly disciplined.

This is a company that's never been.

Sort of.

Hyper marketing driven company in terms of customer acquisition costs, very efficient, but we see great opportunity in heavy equipment, and we've gone and gotten some industry talent.

We spent a decent amount of money and time preparing gov deals can be upgraded after essentially two decades and have some now AI driven marketing capabilities within deals, which is a $700 million G&P marketplace. So if we can just bump recovery by 10% very high payout.

In the second half of the year. So we did step up a little bit there.

We're talking about taken machines.

Two eight.

Asia and that market, including China.

Bigger than the U S and Europe, combined and Thats, a 90% gross margin business.

No.

Fall through of incremental revenue there is like 50, 560%. So we set up an office in.

In China to expand classified listings and we provide financing now on machining from buyers of used equipment. We also rolled out financing.

Buyers of equipment on Gov deals so.

We put some bets in some I think very rational investments into the model in an inflationary environment I would add and we've digested that.

But I think we'll get good leverage on those investments in the second half.

But in the near term.

As we move through executing this strategy and the growth that's out there.

Are you using your balance sheet to finance or you're just facilitating a third party transaction with the lender.

The latter we're not we're not a direct lender nor do we want to be but that referral to a broader ecosystem of financial institutions is very healthy for us.

They are very complementary.

Okay. Thank you very much.

Thank you.

Please standby for our next question.

Our next question comes from the line of George Sutton with Craig Hallum. Your line is open.

Thank you Bill you made a very compelling comment at the beginning about.

Once in a generation.

Chance to consolidate I believe you mentioned the retail portion of the space can you just go into more detail on what you were referring to there.

Yes, I think.

Our marketplace dynamic.

Benefits when supply and demand coalesce around that set of services and the buyer experience and we're seeing a lot of interest in our service we're getting.

Additional awards and programs to use our services.

And we're doing a great job in a multi what we call multi channel.

Engagement of the buyer community so from truckloads to pilots to direct.

Consumer.

Buyer demand.

Coalescing under our platform I think thats very valuable for the industry and at the same time to think a lot of smaller players that.

Our being disintegrating essentially.

Not being able to perform at scale and going out of business. So I think those dynamics.

And during a cycle like a fed tightening cycle. We saw this back in 2008.

And really at the time, we started our business in the Dot Com Mania, and then crash so.

Those that stand tall and deliver on the promises that can deliver scalable marketplace experiences, which does take long term investment it's not inexpensive we have.

Pre and post sale.

Logistics support that's very valuable to the industry and I think the industry has been dealing with excess capacity for some period of time, we've had a lot of tightening of course, among retail players reduction in warehouse footprint.

A reduction in corporate overhead and so we stepped into that and provide a turnkey one stop solution to manage and sell.

<unk> returns and excess inventory so that's setting the stage for what we believe is an opportunity to consolidate our position and.

And Thats the long term north star of any marketplaces, you want to be that indispensable.

Very well integrated solution with sellers and buyers and that's what we have in front of us.

And it sounds if I'm hearing you correctly youre doing a fair bit of that just through natural competition.

You also could end up becoming an acquirer of another entertainment spaces.

Effectively what I mean.

I mean, I think that we get to see just about everything that's available in this marketplace because people recognize.

Roll and I think we have a number of very good healthy partnerships.

But I wouldn't rule out.

M&A over the course of time.

Just another historical question you are putting this current environment into context, you've seen.

Cyclical dynamics, where retail buyers.

Start to buy lower price items, given the economic situation can you just give us any sort of context or sense of how long you see this dynamic playing out.

Well it has been playing out over the last 12 months and I think people <unk>.

Generally have done a better job managing their personal balance sheets, but I think they are.

A little guarded I think the lower end is probably disproportionately.

Pulled back from buying goods and either due to higher cost of living.

And we're trying to build a buffer for concern that maybe there is.

Hard landing.

<unk> 2024.

So theyre not.

As saying.

Sanguine about buying.

<unk> or redoing, an entire living room or doing.

Higher.

Outdoor entertainment space and I think we're seeing the upper funnel activity and the results from companies like Lowe's and home depot target and Walmart and ebay and Amazon commentary yesterday.

Suggest that theres been a shift down in sort of average.

<unk> consumer.

And that's fine.

Whatever it is.

We'll be able to liquidate it just means that.

The <unk>.

Higher end of the market has softened.

And.

That may mean that some retailers are probably long on some product that may not.

Move as well during the holiday season and on the other side of that that's an opportunity for liquidity services.

But we're very focused on being the most efficient cost efficient and scalable provider and we can sell whatever comes through but there is no doubt been a tempering in consumer behavior around the purchase of <unk>.

Woods.

Understood. Okay. Thank you for your answers appreciate it.

Thank you.

Yeah.

We have no further questions in the queue.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q4 2023 Liquidity Services Inc Earnings Call

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