Q4 2023 Liquidity Services Inc Earnings Call
Participants
Bill Angrick; Chairman & CEO; Liquidity Services, Inc.
Jorge Celaya; CFO; Liquidity Services, Inc.
Gary Prestopino; Analyst; Barrington Research Associates, Inc.
George Sutton; Analyst; Craig-Hallum Capital Group LLC
Presentation
Operator
Hello, and welcome to Liquidity Services Inc. fourth quarter our fiscal year 2023 financial results conference call. My name is Towanda 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. I'll be your angle, liquidity service, Chairman and Chief Executive Officer, and Jorge Celaya, 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 views as of today, December 7, 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 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 include includes 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 the reconciliation of these measures with the comparable GAAP measures as available 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. 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 Angrick. You may begin.
Bill Angrick
Good morning and welcome to our Q4 earnings call. I'll review our Q4 performance and the progress of our business segments. 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 GMV 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 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'm pleased that we completed 250,000 transactions during the fourth quarter, which puts us on a run-rate of 1 million completed transactions per year, continued tightening by the Fed During fiscal '23 and persistent inflation provided a difficult business climate during the past year. However, our exposure to multiple industry sectors and our flexible service model. Our liquidity services delivered growth in this challenging environment. In particular, for the full year, fiscal '23 RCAG. and retail segments grew direct profits, 11% and 7% year over year organically, respectively. Our resilient business model continues to deliver strong free cash flow, and we've continued to repurchase shares as we see opportunity in our long-term prospects together, it's 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 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. We have successfully elevated awareness of the Liquidity Services, our retail supply chain decision makers, policymakers and partner as the most trusted and reliable solution for the management and disposition and return on consumer goods. We've continued our momentum by adding new programs with important clients in a number of consumer categories. This has fueled record growth in the supply side or of our retail business. And we are 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 the 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. Accordingly, we continue to invest in our multichannel buyer base to drive higher recovery, including expanding our surplus deals marketplace, which provides consumers direct access to retail products with compelling value in support of this $100 million GMV growth opportunity. We've expanded our all surplus deals, consumer curbside pickup service to our Indianapolis facility during the quarter and now offer this service and five outside distribution locations throughout the U.S. to provide outstanding reach for our retail industry partners and buying customers.
During Q4, our GovDeals segment GMV increased 14% year over year, $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 GovDeals marketplace platform, which provides an enhanced buyer experience with improved search navigation bidding and a mobile responsive design. We executed this initiative with minimal disruption to our GovDeals customer and expect these enhancements to improve recovery rates realized by our sellers.
We also continued to expand and improve our GovDeals 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 tag segment direct profit grew 9% year over year as strong sales in our biopharma, energy and heavy equipment categories offset a drop in GMV from the prior year's large spot purchase transaction. We expect continued future growth in the Canada segment as we remain the most trusted market maker for industrial capital assets and a strong new business pipeline. In particular, our keg heavy equipment fleet category grew GMV more than 30% during Q4 and we continue to make progress growing sign 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, we've added significant new talent to our heavy equipment business development to expand awareness of our solution and continued scaling of the heavy equipment category.
Finally, our machine Radio segment continues to grow its revenue and direct profit in the mid-10s organically with enhanced lead traffic in more equipment categories. Today, the machining marketplace has over 3.8 million active used equipment less than 1.4 million monthly buyer visits for nearly 4,000 paying customers from over 100 countries with we continue to invest in expansion of this high margin recurring revenue subscription business through new service offerings, planned geographic expansion into Asia during fiscal '24 on several product.
In conclusion, we continue to make multiyear 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 of the fixed investments we've made will be ended operational capacity, our capital efficient business with strong operating cash flow, approximately $118 million in cash and zero financial debt together provides us ample financial flexibility to execute our plan.
In closing, we thank all of our team members across liquidity services for their dedication to our mission to power the circular economy to benefit sellers, buyers and the planet. I'll now turn it over to Jorge for more details on the quarter.
Jorge Celaya
Good morning for our 2023 fiscal year, we set a record for annual GMV at $1.2 billion, up 5% and grew revenue $314.5 million, up 12%. Our GAAP net income of $21 million was up 33% when excluding the impact of the nonrecurring prior year gain from the bid for assets, earn-out liability were 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 2024 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 GMV, 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 $0.2, non-GAAP adjusted EPS of $0.26 and non-GAAP 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 GovDeals segment was up 14% on GMV, 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 RSCG segment was up 18% on GMV, 15% of revenue and 4% on segment direct profit, which 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 COGS segment was down 4% on GMV, 20%, 47% on revenue, yet up 9% on segment direct profit has increases in global biopharma, energy and head heavy equipment categories, mostly offset. As Bill mentioned, the prior year's large international spot purchase transaction casino revenue was up 15% and its segment. Direct profit was also up 15%, reflecting continued increase in subscriptions. Our segments direct profit improvements resulted in GAAP net income for the fourth quarter of $6.3 million resulting in diluted GAAP earnings per share of $0.2 and compared to $0.25 per share last year, where last year again included a $0.14 nonrecurring gain from the bid for assets earn-out, fair value adjustments, so non-GAAP adjusted EPS, but this fourth quarter was $0.26, up from $0.19 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 share expansion, continued diversification and marketplace enhances our profitability margins, especially adjusted EBITDA as a percent of direct profit historically is higher during the second half of our fiscal year. Our fiscal year 2024 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 quarter of fiscal year 2024 guidance reflects that our RSCG 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 to supply of some client-specific higher-value products for sale on a consignment basis is currently pacing slower than less 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 D-MD, our guidance ranges for GAAP EPS, non-GAAP adjusted EPS and adjusted EBITDA for the first quarter, we expect that to be consistent year over year to down mainly driven by the current mix of supply at our retail segment. Also, as a reminder, the prior year fiscal first quarter results included a $900,000 nonrecurring benefit from a completed client program. We currently anticipate our first quarter consolidated revenue ratio as a percentage of GMV to decline slightly to the prior year, mainly due to mix, but continued to be in the mid-20 percentage range and our segment's direct profits as a percentage of revenue 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 GMV to range from 295 million to $325 million. GAAP net income is expected in the range of $1.5 million to $4 million for the corresponding GAAP diluted earnings per share ranging from $0.05 to $0.12 per share. We estimate non-GAAP adjusted EBITDA to range from seven to $10 million. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.12 to $0.19 per share. The GAAP and non-GAAP EPS guidance assumes that we have 32 million fully diluted weighted average shares outstanding for the first quarter of fiscal year 2044. Thank you and we will now take your questions.
Question and Answer Session
Operator
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. Once again, please stand by while we compile the Q&A. First question comes from the line of Gary Prestopino with Barrington Research. Your line is open.
Gary Prestopino
Hey, good morning, Bill, and we have a number of questions here. First of all, I didn't see any in the narrative in the release about share repurchases. Did you repurchase any shares this quarter.
Bill Angrick
Allow me just make sure make sure you understand. We do have an open authorization for repurchases or hey can answer what was it what was executed? I believe we've tapered purchases?
Yes.
Jorge Celaya
Are there was there was soft. There was none very little this quarter.
Bill Angrick
Okay.
Gary Prestopino
Why was that with it with the cash that you're building?
Bill Angrick
Well, and just to we call use of cash from the Company's perspective, we're finding them grow, and we also have some ideas around partnerships, inorganic that can support our strategy. So we've got an active acquisition pipeline. And of course, we do if you look back beyond this quarter, Gary, meaningful down the purchase on continued usage. So I wouldn't overweight the last.
Okay.
Gary Prestopino
And then I also didn't see anything of consignment sales.
Bill Angrick
I guess as a percentage of GMV on the narrative was in the quarter, think we're about 87% of GMV is under the content model, roughly 82% prior year quarter.
Okay, great.
Gary Prestopino
And then just to understand some some things here with First of all, with what's going on in the RS., the retail segment?
Yes, 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 GMV and is that a function of some of the investments that you're making in wall surplus or is there something else going on there that's hitting the margin that would make the direct profit not grow as dramatically as the revenue and GMV?
Bill Angrick
Yes, if you look at the dynamic in retail, it's a two-sided marketplace. 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. So we've as I just mentioned, we've been growing our consignment business overall. We've been growing in retail we have some volume, Gary, that's coming in with a lower take rates and lower direct profit GMV, but high gross margin on the revenue collected. So that's one that I think the other dynamic and you probably heard many industry participants about the consumer has tapped the brakes a bit on purchasing higher ticket items. So the flow of goods coming into liquidity services reflects that there is a lower volume, the basket of returns that generally tied to e-commerce retailers, omnichannel retailers, we still make good money on that. It's just not as attractive to where we were one year ago. And so we're working through that. But the high-quality problem, if you will, call it, that is down. We've got a ton of interest in our service. We had a ton of interest in people wanting and needing solution. 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 excites us, you know, a strong sort of post-holiday dynamic for us to help our clients, we all ranges of goods.
Gary Prestopino
Okay, thank you. And then just the last question and I'll jump off on. When you're talking about your guidance for Q1, it looks like your guidance for GMV 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're talking about investments and growth and stuff like that on Is most of that growth in expenses going to be on the sales and marketing line? Because it looks like at least for the last quarter, you were running at close to $27 million aggregate. Can I'm just trying to get an idea of where that higher level of expenses is going to come 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 and sales and technology.
Bill Angrick
I think marketing, we've been fairly disciplined and 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 mark marketplace, where we're growing that business really well and adding some capacity, Gary, that will provide leverage in there. We spent a decent amount of time preparing GovDeals to be upgraded after essentially two decades from now AI-driven marketing capabilities within GovDeals, which is now about 700 million in the 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 taking machine, you too Asia. That market, including China, is bigger than the US and Europe, that's a 90% gross margin business. So no fall through of incremental revenue. There is a 55%, 60%. We set up an office to expand classified listings and we provide finance financial buyers, equipment. We also rolled out buying a bunch of equipment and GovDeals. So we put some bets, I think, very rational investments. 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 support of that in the near term as we move through executing this strategy and the growth itself, are you using your balance sheet to finance?
Gary Prestopino
Or are you just facilitating a third party transaction with the lender?
Bill Angrick
The latter, we're not a 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 and very complementary.
Gary Prestopino
Thank you very much.
Operator
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.
George Sutton
Thank you. Bill, you made a very compelling comment at the beginning about a once-in-a-generation chance to consolidate. I believe you mentioned detailed portion and you just go into more detail on what you are referring to there.
Bill Angrick
Yes, I think, you know, 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 multichannel engagement of the buyer community. So from truckloads to pallets to direct consumer buyer demand coalescing onto our platform. I think that's very valuable for the industry. And at the same time, we think a lot of smaller players that are being are disintegrating essentially and 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 dotcom mania and crash. So you know those that stand tall and deliver on their promises and deliver scalable marketplace experiences, which does take long-term investment. It's not inexpensive. We have a great marketplace that has been enhanced. We've got a national distribution center network really international Canada and the US. It now has both B2B and direct-to-consumer online sales channels and the pre- and post-sale logistics support that's very valuable to the industry. And I think the industry it's been dealing with excess capacity for some period of time. You've had a lot of tightening of costs among retail players, a reduction in warehouse footprint, reduction in corporate overhead and so we stepped into that and provide a turnkey one-stop solution to manage, sell both returned and excess inventory. So that's setting the stage for what we believe is an opportunity to consolidate our position. And that's 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.
George Sutton
And it sounds if I'm hearing you correctly, you're doing a fair bit of that just through natural competition. You also could end up becoming an acquirer of another entity in spaces that effectively what you're finding.
Bill Angrick
I mean, I think that 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.
George Sutton
Just another historical question. They 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 and has been playing out over the last 12 months.
Bill Angrick
And I think people generally have done a better job managing a personal balance sheet, but I think they're a little guarded. I think the lower end is probably disproportionately pulled back from being goods and either due to higher cost of living and or trying to build that buffer for concern that maybe there's a hard landing before. So they're not it is sanguine about buying appliances or redoing an entire living road doing entire outdoor entertainment space. I think you're seeing upper funnel activity in the results from companies like Lowe's and Home Depot and Target and Walmart. And even Amazon commentary yesterday suggested that there's been a shift down in sort of average basket of consumer purchases?
That's fine. I mean, whatever it is, we'll be able to liquidity adjustment at the 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's no doubt been a tempering consumer behavior around the purchase of good. Understand. Okay.
Jorge Celaya
Thank you.
Operator
Thank you. 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.
