Thank you all for being here, and welcome to the Q2 Fiscal Year 2020 Liquidity Services Earnings Conference Call. I will now turn the call over to Ms. Julie Davis, Senior Director of Investor Relations. Please proceed, ma'am.

Thank you, Jimmy. Hello, and welcome to our Second Quarter Fiscal Year 2020 Financial Results Conference Call. Joining us today are Bill Angrick, our Chairman and Chief Executive Officer; and Jorge Celaya, our Executive Vice President and Chief Financial Officer. We will be available for questions after our prepared remarks. The following discussion or responses to your questions reflect management's views as of today, May 7, 2020, and we 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 our filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, we will discuss certain non-GAAP financial measures. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. We also use certain supplemental operating data as a measure of certain components of operating performance, which we 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'd like to turn the presentation over to our CEO, Bill Angrick.

Thank you, Julie. Good morning, and welcome to our Q2 earnings call. I'll review our Q2 performance and provide an update on key strategic initiatives. Next, Jorge Celaya will provide more details on the quarter. During one of the most difficult periods in global markets, Liquidity Services has responded quickly to protect our employees, our customers, and our shareholders. In March, we moved rapidly to address all health and safety issues for our employees and customers and to control costs in order to mitigate the impact of reduced volumes in our business. We are humbled by and very proud of our team's effort to work together and quickly adapt to the new environment to continue to deliver value to our buyers and sellers. Our primary focus during the global pandemic and resulting economic crisis is to help our sellers monetize assets and generate liquidity in a safe and reliable manner, while providing buyers online access to the inventory and equipment they require to meet their business needs. By leveraging our marketplace solutions, defined by, paid for and shipped assets, commercial and government customers are able to conduct commerce safely and efficiently. Our results for the second quarter were largely aligned with our expectations through mid-March. The last 2 weeks of March were impacted by the economic fallout surrounding the pandemic, which had an adverse effect on our overall results. Our RSCG segment grew GMV by 6% over the prior year period despite declines in seller activity at the end of the quarter as online retailers prioritized their attention and resources to meet demand almost exclusively for essential goods. We also saw mixed higher demand with some buyers increasing their average purchases and some decreasing, depending on the varying circumstances. Prior to this slowdown, we experienced strong volume in our RSCG segment from existing sellers and we launched new programs with both mid-sized and large retailers, and we continue to see strong buyer demand for retail goods in our Liquidation.com marketplace. In our CAG segment, we saw a significant slowdown early in the second quarter as travel restrictions and facility closures in China interrupted supply from our sellers and prevented buyers from inspecting goods already for sale. This trend then affected our EMEA and North American regions in March as the pandemic spread. We are starting to see seller facilities reopen across the globe and anticipate activity will increase steadily, provided governments continue to reduce restrictions related to COVID-19. Our GovDeals segment was on track to report record second quarter GMV, but volume from sellers slowed significantly during the last 2 weeks of March as governments enacted shelter-in-place orders and closed facilities. This also prevented buyer pickups and their ability to complete related transactions. Finally, our Machinio segment revenue grew 24% over the prior year despite a slowdown in traffic during March as equipment buyers, many of whom are small businesses, waited for better visibility on the depth of the economic downturn. During Q2, we further enhanced our new consolidated marketplace, AllSurplus.com, including the addition of new self-service features that enable a low-touch solution to sell assets online, which eliminates the need for live, in-person contact. We have seen early adoption of this model from sellers that have historically relied on our traditional managed services approach as they shift to primarily cloud-based business processes. In early March, we began to transition our marketing focus from legacy marketplaces to AllSurplus and have seen a 92% increase in traffic from targeted buyers and an increase in transactions completed through the new marketplace. We believe our self-service solution over time will be an attractive growth opportunity as business sellers and buyers adapt to social distancing guidelines due to the pandemic. Moreover, by aggregating supply on AllSurplus, we are providing buyers and sellers more opportunities to quickly transact across a wide array of products, including heavy equipment, energy, and manufacturing equipment. Looking forward, it is very difficult for us to forecast the impact of the pandemic on our business. We all understand the near-term impacts of the pandemic have been quite negative. Public policy actions in the U.S. and abroad have included meaningful restrictions in economic activity, including business closures, travel restrictions, limitations on the operations of business activity, or significant prioritization of essential business functions over reverse supply chain functions. As a consequence of these actions, the flow of assets into our marketplaces has been reduced. We expect sharply lower volume from our GovDeals segment until state government reopening phases take place. As the economy reopens and the business climate improves, we believe our government sellers will resume their selling activity over time. We are starting to see an increase in activity as governments prepare to reopen facilities in the coming weeks. However, at this time, the overall financial impact to state and local government agencies from the pandemic remains unknown, and this could influence their decisions to sell surplus assets in the future. Our RSCG segment expects to continue to support retailer needs, including online retailers through our Liquidation.com marketplace, even if at a lower-than-average volume in the short term. As long as we can ensure the safety of our employees, we will maintain our fulfillment center operations in support of the essential supply chain needs of our sellers and buyers. As the pandemic restrictions subside, we expect retailers to address the reverse supply chain needs in a more comprehensive way, turning to third-party vendors such as ourselves to address any accumulation of returns or excess inventory accumulated during the shelter-in-place and safer-at-home phases of the pandemic. We also expect our CAG segment to see reduced volumes as many seller facilities are closed and restrict buyer inspection of assets, asset pickup, and in many cases, employee cataloging of assets for sale. Yet, we believe the need for liquidity from our sellers in the CAG segment and the demand for value-priced equipment from our buyers will create future positive conditions of supply and demand within our CAG segment. We have a long-standing market-maker reputation for selling high-value equipment globally across numerous industries, and we'll continue to support the needs of our traditional seller base. At the same time, we will offer our new, expanded and timely solution to sell in place with our self-service low-touch solution on AllSurplus.com, which aligns with our long-term strategy. Our long-term strategy remains focused on creating efficiencies for ourselves, our sellers, and our buyers by focusing on the people, processes, and technologies that deliver optimal liquidity in the reverse supply chain and enables our growth through an asset-light, low-touch marketplace solution. In closing, during the pandemic, we have witnessed shining examples of our team's ability to consistently show our customers that we are the most reliable partner for delivering results in the reverse supply chain, no matter the circumstances. We believe we are well positioned to weather the global pandemic of COVID-19, and that the strength of our online platform and the ingenuity of our team will enable us to adapt and solve the evolving challenges of our sellers and buyers across the industries we serve. I'll now turn it over to Jorge for more details on the quarter.

Good morning. We finished the second quarter of fiscal year 2020 within guidance range for all our metrics, except gross merchandise volume, which was $144.3 million, only slightly below $145 million for the low end of guidance. As compared to the second quarter of fiscal year 2019, GMV and adjusted EBITDA were down due to: 1) the lower volume in our CAG segment related to COVID-19 impacts across APAC, EMEA, and North America; 2) lower volumes than expected in our GovDeals segment related to COVID-19 impacts in March, which offset growth in volumes in January and February; 3) slower activity in our RSCG segment at the end of March related to COVID-19 impact, which offset increased volumes from existing sellers through mid-March; 4) the impact of the wind down of our DoD Scrap contract last year in our CAG segment; and 5) previously planned increases in our sales expenses and higher marketing expenses to promote our new e-commerce technology platform and further develop our consolidated marketplace. We have been closely monitoring the COVID-19 pandemic. By mid-March, we began to experience an impact on operations, resulting from the actions taken by governments and private sector entities to limit the spread. As a result, the flow of assets into our marketplaces was hindered as seller facilities closed, which, in turn, reduced the ability of their employees to process assets and for buyers to pick up or arrange for shipping of assets. Compared to the second quarter of fiscal year 2019, GMV declined 7%, and revenue was also down 7%, including the impact of the wind down of the DoD Scrap contract. In the second quarter, GovDeals GMV was flat as compared to the second quarter of fiscal year 2019 as a result of reduced volumes beginning in mid-March, with many government facilities closed due to COVID-19. Our Retail Supply Chain Group GMV was up 6%, driven by growing volume within existing seller accounts despite the mid-March effect of COVID-19, where RSCG began to experience reduced volumes resulting from retailers prioritizing their resources to meet the demand of essential goods in response to the pandemic. These improvements were partially offset by a 37% year-over-year decrease in our CAG segment, impacted by the wind down of our DoD Scrap contract and an impact from the COVID-19 pandemic as travel restrictions and facility closures in China first interrupted supply from sellers and prevented buyers from inspecting goods. This trend affected our EMEA and North American regions in March as the pandemic spread. Excluding the impact of the DoD contract, the CAG segment declined 28%. We reported second quarter of fiscal year 2020 revenue of $52.8 million. Despite the COVID-19-related headwind, GovDeals revenue increased 1.6% on better product mix, and RSCG increased 6.6%. Our CAG segment revenue decreased 49% compared to the second quarter of fiscal year 2019, including the wind down of the DoD Scrap contract. Yet, excluding the DoD contract, CAG segment revenue was down 25% compared to the same quarter last year. Our second quarter fiscal year 2020 GAAP net loss was $4.2 million, a 3% improvement from a loss of $4.4 million in the second quarter of fiscal year 2019 as top line impacts were offset by lower operating expenses than last year. Adjusted net loss was $3.2 million, an increase from a loss of $719,000 last year, which reflected mainly higher stock compensation in the prior year. Our second quarter adjusted EBITDA was negative $1.6 million, a decline from a positive $937,000 in the same period last year, also reflecting lower stock compensation expense this year. We have a debt-free balance sheet. As of March 31, 2020, we had a cash and short-term investment balance of $51.8 million, an increase of $2.6 million from the prior quarter ended December 31, 2019. During the quarter, we paid a $5 million Machinio earn-out payment based on achievement of performance benchmarks. Looking ahead, as Bill laid out, we expect the COVID-19 pandemic may cause GMV, adjusted EBITDA, and cash to decline in the short term, although our actions taken to conserve resources and the speed at which business activity might return may mitigate these short-term declines. The likelihood, magnitude, and timing of these events across our segment is difficult to predict. We expect to be negatively impacted by a lower number of transactions on our marketplaces in the short term, and possibly longer, which will affect our operations and cash flows. We are, therefore, not providing quarterly guidance. Thank you. We will now take your questions.

Our first question comes from Colin Sebastian with Baird.

I have a couple of broader questions. First, regarding AllSurplus and the effort to consolidate the buyer and merchant base, are you noticing any synergies from bringing those larger groups together? Can we expect an increase in auction participation over time? Secondly, given your experience in previous downturns, how should we anticipate the timeline for a possible increase in liquidation volumes if we encounter a prolonged recession, particularly in the Retail and CAG divisions?

Sure. Well, regarding your first question, part of our long-term strategy has been to drive scale benefits of aggregating supply and demand in our consolidated marketplace, which has been branded AllSurplus. We know that in marketplaces, scale matters. It helps us leverage marketing spend. It also allows us to support cross-pollination of our buyers. Buyers who might buy in a category such as transportation may also have needs in adjacent categories such as material handling equipment or construction equipment. And so it's a natural place for us to go. We see a lot of overlap in the industrial categories. The things that we've managed and sold for many years for both commercial and government sellers, and early returns there are positive. We're taking it methodically. This is a long-term effort. This is not something that's going to turn on a dime, but we've had good validation with the customers that have come in and we're seeing good receptivity for both the marketplace and the self-service capabilities allow sellers to upload and manage transactions directly on the marketplace and reach the 3.6 million buyers that we have. Regarding recessions, I think what's interesting this time, Colin, is I think we've had a history of doing well in recessionary periods for a variety of reasons. As far as how well we do in pandemics, which result in travel restrictions, facility closures, shelter-in-place orders, that's an entirely different environment. And I think in the short term, there's no question that has a severe restriction in commerce for everybody, not just Liquidity Services. But in the mid and long term, we are a countercyclical marketplace. We know that our buyers are frugal. They're looking for value. And we know that sellers, whether they be retailers, manufacturers, or in government agencies, are looking to monetize assets. Those speak to our strengths. And so periods like the 2008, 2009 downturn, we've had steady progress. We would expect once you normalize for some of these very extraordinary restrictions in society and restrictions in government policies, once you normalize from that, we are kind of a cyclical play, if you will. But I don't want to sugarcoat what we've witnessed. I think April was very difficult for this economy. We had many long-standing government sellers who simply closed up. No access to those facilities, no employees, no ability to list and sell assets. So in many parts of that market, business was closed. And that's going to have a very negative short-term impact. How do we predict the future? Well, we can't tell you if it's a V recovery, an L recovery, and some folks are talking about a W, where you have a recovery and then maybe a second wave. That's why it becomes very difficult to provide near-term guidance.

On that note, when we observe how different companies are adapting to the current environment, such as through sell-in-place strategies and the need for businesses to liquidate assets and inventory, are there specific programs or methods being implemented? Given the challenges at physical locations and the shortage of staff in warehouses, how are companies and municipalities finding ways to adapt so that the flow of goods can resume?

It's interesting to observe how the same challenges are approached differently in various locations, as these decisions ultimately rest at the local level. Many of our clients are local governments, such as municipalities, towns, villages, and counties, each tackling the issues in their own way. We have informed the market about our technology-driven methods that eliminate the need for face-to-face interaction, which we believe is an excellent solution, especially in situations where health concerns are present. Over time, we expect this message to resonate and become one of our strengths. Our value proposition is compelling, but it ultimately depends on the decisions made by local leaders like governors or mayors.

And your facilities are still open. Is that correct?

Well, we have a couple of different aspects to our operations. Our retail supply chain fulfillment centers are an essential part of the supply chain and have been continuing to function and operate, although less-than-full capacity because we're maintaining strict guidelines in line with recommendations from health care and other experts. Our offices, while technically open, as most of America has adapted, we have also adapted to a virtual work-from-home environment primarily, and that will continue to be the case. And we'll continue to be governed by state and local ordinances. Outside the United States, much the same. We don't have distribution centers or fulfillment centers outside the United States. In Canada, we do, and that is more or less the same as our U.S. retail supply chain operations, open and operating, but less than 100% capacity. The other parts of our marketplace are more or less in a virtual online status of operation at this stage.

And then, Jorge, the comments on cash and just the near-term dynamics. I mean, how are you feeling in general about the liquidity position of the company and different scenarios that may play out over the coming months?

Well, we're managing the drop from the top line and managing the expenses accordingly. As you saw, we finished March with a reasonably good cash position, stronger than we ended last quarter, as we thought. And that's despite, of course, having spent $5 million during this last quarter on the Machinio earn-out. So it was a reasonably good, strong cash-generating quarter. As the business picks up, obviously, the cash will improve. For the short term, having over $50 million on the balance sheet, given the actions that we took in March for the month of April, we're feeling comfortable with that, which is why we took those actions. As we go forward, we'll continue to reassess. We do have avenues for other capital. But for now, although we've explored them all and know what they are, we're sitting tight with our cash on hand and zero debt.

And our next question comes from Gary Prestopino with Barrington Research.

Yes. I have a few questions to ask. Firstly, it seems that your free cash flow was quite strong this quarter. Can you clarify if this is mainly due to the expense reductions you've implemented? I'm trying to understand this better. It was $52 million compared to about $40 million, and you also paid $5 million for Machinio. Could you provide more details on that? Additionally, I’d like to know how much you've reduced your costs in response to the pandemic.

Yes. So I'll take the first one and pass the second to Bill. The answer is no. Yes, we've always had a little bit of cost reduction as we've gone. But when we're talking about the actions that we took in March for April, those were for April. So the more significant reductions, including furloughs and so forth, did not impact the January, February, March quarter.

Regarding operating costs, we recognize that we operate a knowledge-based business, where our main assets are our personnel and our technology platform, which largely contribute to fixed costs. However, there are various strategies we can implement to adjust our spending based on the visibility of gross merchandise volume or transaction volume, and we have successfully managed those variable costs down. While they are not the majority of our expenses, they are significant. It is crucial for businesses in this environment to align this cost modulation with both decreases and increases in activity. April was a particularly challenging month for the national GDP, and this figure is likely to reflect trends across many businesses, including ours. We operate a diverse range of businesses, and the Retail Supply Chain has remained relatively strong as it plays an essential role. Conversely, when governments close down operations, there isn't much to do besides being patient, adhering to guidelines, and resuming activities when permitted. That's the approach we've taken. We have managed controllable costs effectively, cutting back on travel, discretionary expenses, marketing costs, and other areas to align with transaction volume, which has been beneficial.

Well, maybe I'll also...

Go ahead.

Sure. To give you an idea, we've always paid close attention to our volumes, forecasting, and cost structure as we look ahead. Fortunately, since late last year, we were focused on this and made improvements with our system changes, which provided us better visibility on cash more frequently. Starting in March, we made significant changes with furloughs and work-from-home arrangements, adapting our plans rapidly within about ten days. We've also implemented detailed forward-looking assessments and a daily review of our gross merchandise value and transaction volumes across our marketplaces. We monitor that information daily, convert it into weekly data, and assess our cash regularly on a weekly basis. We're evaluating our expenses based on current trends, not just following the typical quarterly or monthly forecasting, but also conducting bimonthly and weekly evaluations to determine what we expect in the coming weeks. We're highly focused on short-term assessments regarding the upcoming week, month, and quarter, rather than long-term financial performance, allowing us to react quickly to any changes.

Yes. What I'm trying to understand is what percentage of the $57 million in costs and expenses for the quarter could be classified as variable. Additionally, based on the GMV levels you are seeing in Q3 and potentially in Q4, do you expect neutral cash flow or cash burn over the next two quarters if conditions remain similar to April? I will have a follow-up question after that.

We are not providing guidance on cash. However, we have implemented measures to help us monitor the reductions in our revenue alongside our cash expenditures. We feel confident about our current position and will continue to manage this on a weekly and monthly basis as we have indicated.

I think the most difficult part of that question is, you tell me what the relaxation of restrictions will be by county or by state throughout the United States. If you can give us the answer to that, I think we can give you better forecasting. I don't think anyone knows the answer to that precisely. So we're managing it on a short-term basis, as Jorge indicated.

Could you provide an overview of how your GMV was affected in the last two weeks of March compared to the first two weeks of March? Additionally, as we progress through April, are you noticing any weekly increases in GMV? We've heard from other companies that there was a significant decline initially, especially in the first couple of weeks of April, but it seems to be recovering gradually. I'd appreciate your thoughts on this.

I think regarding the down slope that people observed from March into April, that was very pronounced, owing to facility closures. When you start to look at metrics like the number of actual sellers who are open for business and who are listing the number of assets posted to our marketplace, that was down 50% to 60% on the down slope in April. Now from what we can see, we think we've touched bottom, and that's starting to move in the other direction. The question is the slope of recovery, and that's largely dictated by regulatory decisions, policy decisions that are being debated and discussed at city councils and governor task force levels. It was a very pronounced drop. I think when you're looking at the U.S. down 40% in GDP in April, that's brutal.

Right. No. No, I understand that. I'm just trying to get a feel for, at least on a short term, what's going on. And then in terms of price realizations throughout all of this on the buyer side, have the sellers been willing to take a significant haircut on price just to move goods? Or have you been seeing that?

I believe market forces continue to influence price setting. There isn't a sense of panic selling; rather, people seem to be seeking an orderly process for disposition. Our advantage lies in our coverage across various industries. Energy has performed well, and retail supply chains have also been strong. However, there are limits on the volume of goods processed in retail due to the prioritization of essential items. As you've seen, many retail stores have closed, and some fulfillment centers and supply chains struggle with staffing or have to focus on managing healthcare supplies first. This poses a challenge for us. Despite this, there is still a market for price discovery through orderly channels, which we engage in daily. There is a willingness to monetize assets, but it's not at a forced liquidation value or through panic selling; people are aiming for competitive pricing.

I’m currently showing no questions in the queue. I would like to hand the call back to the speakers for any closing remarks.

Hi. Thank you all for joining our call today. Please reach out to me if you have additional questions or have any follow-up. Thank you so much, and have a good afternoon.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.