Welcome to the Liquidity Services Inc. First Quarter Fiscal Year 2024 Financial Results Conference Call. My name is Norma, and I will be your operator for today's call. Please note that this call is being recorded. On the call today are Bill Angrick, Liquidity Services' Chairman and Chief Executive Officer; 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, February 8, 2024, and will include forward-looking statements. Actual results may differ significantly. 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. As you listen to today's call, please have the press release in front of you, which includes Liquidity Services financial results as well as metrics and commentary on the quarter. During the call, Liquidity Services management will discuss certain non-GAAP financial measures, some of which are posted on its website, and you will find additional disclosures regarding these non-GAAP measures, including reconciliations with the comparable GAAP measures as available. Liquidity Services management also uses certain supplemental operating data as a measure of specific components of operating performance, which they believe is useful for management and investors. This 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 Chief Executive Officer, Bill Angrick.

Good morning, and welcome to our Q1 earnings call. I'll review our Q1 performance and the progress of our business segments. Next, Jorge Celaya will provide more details in the quarter. We recorded 13% organic growth in consolidated GMV this quarter, led by our GovDeals segment, which benefited from strong bidder engagement on our modernized govdeals.com marketplace platform. Additionally, we recorded strong subscriber growth in our Machinio segment as customers continue to be delighted by our Machinio System, dealer management software solutions, which deliver outstanding ROI by automating and improving asset management, marketing, and sales activities. Of note, Machinio was selected by XCMG E-Commerce, an Asia-based multinational corporation, to facilitate the sale of more than 6,000 refurbished construction machinery assets as part of their reconditioned machine refurbishment program to remarket and extend the life of these assets. This is just one recent example of our successful expansion into the Asia Pacific region, which more than doubles the addressable market for our Machinio segment. Growth and profitability in our RSCG and CAG segments were impacted during Q1 by an inferior mix of product and delays in selected international sales events at quarter end, respectively. However, we are seeing an improvement in our RSCG product mix as we enter the seasonally high fiscal second quarter, and most of the delayed projects in our CAG segment are expected to close during the fiscal second quarter, resulting in the resumption of year-over-year growth. We continue to provide strong liquidity for our sellers across all segments as the number of auction participants on our platform grew by 14% year-over-year during Q1, and the number of completed transactions grew 12% year-over-year. We continue to invest in our multichannel buyer base to drive higher recovery including expanding our AllSurplus Deals marketplace, which provides consumers direct access to value-priced merchandise and expands addressable market in the retail supply chain. We are pleased to report that we have successfully rolled out our AllSurplus Deals marketplace offering in five markets, and we are setting new records for completed transactions, revenue, and profitability week-over-week in this channel as we move through the current quarter. In support of our long-term strategy, we continue to expand our market share in our GovDeals and CAG segments through the acquisition of Sierra Auction, which strengthens and accelerates our position as the leading online platform for the sale of vehicles, equipment, and surplus assets for government and commercial fleet sellers. In summary, we remain the trusted provider of choice for commercial and government claims in the circular economy and continue to deliver outstanding value for our customers as companies of all sizes and industries seek to better manage their assets, inventories, and supply chains to drive efficiencies. They are turning to the Liquidity Services platform. We intend to capitalize on our strong buyer base and business pipeline across our segments to deliver improved growth and profitability in our current fiscal second quarter. In parallel, we continue to make multiyear investments to expand our market share and enhance our platform's capabilities to drive long-term growth for Liquidity Services shareholders. Our results will benefit from these investments and our expanded operational capacity. Our capital-efficient business with strong operating cash flow, approximately $107 million in cash with zero debt provides us ample financial flexibility to execute our plans. 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. And I'll now turn it over to Jorge for more details on the quarter.

Good morning. We completed the first quarter of fiscal year 2024 with $305.9 million in GMV, up 13% from $270.8 million in the same quarter last year. We saw a very strong performance for our GovDeals and Machinio segments this fiscal first quarter. While finishing the overall quarter within guidance, albeit at the low end of guidance due to delays in various CAG segment high-margin projects, which were mostly already finalized this January, and a slower-than-anticipated improvement in our retail segment from the more recent product mix trends related to lower value supply in the market. Our fiscal first quarter revenue was $71.3 million, down 1% from $72.3 million in the same quarter last year, reflecting consignment GMV at 89%, tying an all-time high. The mix of our retail segment supply was a factor in the higher mix of consignment GMV. Our fiscal first quarter consolidated profitability included GAAP EPS of $0.06, non-GAAP adjusted EPS of $0.14, and non-GAAP adjusted EBITDA of $7.3 million. While our operating expenses were well controlled during the quarter, the percentage drop in revenue and direct profit compared to the same quarter last year reflected the CAG and retail segments delays and product mix, respectively. We ended the quarter with $107 million in cash, cash equivalents, and short-term investments. We performed $1.2 million of share repurchases during the quarter. At the beginning of January, we completed our acquisition of Sierra Auction for $13.5 million in cash paid at closing in this fiscal second quarter. We continue to have zero debt and $25 million of available borrowing capacity under our credit facility. Specifically comparing segment results from this fiscal first quarter to the same quarter last year, our GovDeals segment was up 18% on GMV, 17% on revenue, and up 17% on segment direct profit driven by increased availability of vehicles and strong bidder engagement on our newly modernized Govdeals.com marketplace platform. Machinio was up 18%, and its segment direct profit was up 19% with continuing increase in subscribers and pricing for Machinio Advertising and Machinio System dealer management products. Our RSCG segment was up 3% on GMV, down 5% on revenue due to mix, and down 12% on segment direct profit as the GMV increase was driven by lower take rate, low-touch consignment solutions, while retailer purpose programs and some retailer consignment activity continued to reflect the impact of the lower value product mix compared to last year. Despite the delays in projects during December, our CAG segment was up 9% on GMV, yet down 17% on revenue and 18% on direct segment profit as a more diversified GMV mix with increases in global energy and industrial consignment sales were not enough to offset the prior year fiscal first quarter's high-margin international purchase transactions. GAAP net income for the first quarter was $1.9 million, resulting in diluted GAAP earnings per share of $0.06 compared to $0.12 per share last year. Non-GAAP adjusted EPS for the first quarter was $0.14, down from $0.19 in the same quarter last year. While non-GAAP adjusted EBITDA of $7.3 million this quarter was down from $9.8 million in the same quarter last year, reflecting the CAG and retail segment results. Our fiscal year 2024 outlook continues to anticipate year-over-year growth for the second quarter, with improvements in consolidated results expected for the second half of fiscal 2024 compared to the first half of fiscal 2024. The second quarter of fiscal year 2024 guidance includes continued strong performance for our GovDeals segment and further improvement in the GovDeals segment from our acquisition of Sierra Auction this quarter. Our CAG segment also looks to have a stronger sequential quarter for this fiscal second quarter as it captures transactions delayed from this past fiscal first quarter. We also expect the traditional sequential seasonal growth effect for our RSCG segment during this coming quarter's post-holiday return season. Compared to last year, RSCG expects continued expansion on its lower-touch consignment programs, while the mix of product across some purchase and consignment program is expected to begin to improve sequentially. Compared to last year, these will continue to receive a higher mix of the lower value flows from certain seller programs. Consolidated operating expenses are currently expected to increase from the Sierra Auction acquisition, mainly in operations expense and variable expenses related to top-line growth overall. We currently anticipate our consolidated revenue as a percent of GMV to reflect our current level of consignment mix and remain in the low to mid-20% range, which can also vary based on our mix of asset categories transacted. We expect our segment direct profits as a percentage of total revenues to increase year-over-year, remaining at a similar percentage sequentially to our fiscal first quarter 2024 results. Management's guidance for the second quarter of fiscal year 2024 is as follows: We expect GMV to range from $320 million to $350 million, GAAP net income is expected in the range of $3 million to $6 million with a corresponding GAAP diluted earnings per share ranging from $0.09 to $0.19 per share. We estimate non-GAAP adjusted EBITDA to range from $9 million to $12 million. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.17 to $0.27 per share. The GAAP and non-GAAP EPS guidance assumes that we have 32 million fully diluted weighted average shares outstanding for the second quarter of fiscal year 2024. Thank you, and we will now take your questions.

Our first question comes from the line of Gary Prestopino with Barrington Research.

Jorge and Bill, a couple of questions really regarding Sierra, the acquisition you made. First of all, the cash payment for that, that is not reflective in the year-end balances of cash, right, since it closed on January 1? Or am I mistaken on that?

That's correct.

So it does not reflect then, right?

$107 million in December 31, we made the acquisition in January.

I just wanted to confirm that. Can you provide an idea of the GMV generation from Sierra Auction? Does it have a similar direct profit margin contribution as the GovDeals business does currently?

The business, very similar to GovDeals, it's virtually 100% consignment, very high gross margins. This is an example of our favorable position to be a consolidator in the market. This is a sub-$100 million GMV business that we can quickly scale to $100 million plus in that territory. Arizona is a market that's benefiting from in-migration from California and other places. It's a business opportunity that leverages increasing investment in infrastructure, vehicle fleets, retirement, and upgrading of assets. So we have a two-pronged growth opportunity. There are a number of long-standing government customers going back to the 1980s. Additionally, there are many commercial fleet owners that really covet the liquidity that we bring both through Sierra's legacy operations and now the GovDeals buyer base. And so we're quickly integrating, Gary, these buyer base and operational activities to grow a $100 million-plus business in a territory that we've had some presence but really have been underpenetrated in.

And Gary, I would also like to highlight that the deals had a strong performance this past quarter without the Sierra acquisition, and we anticipate another quarter of double-digit growth next quarter without Sierra. While Sierra is beneficial, as Bill mentioned, it indicates the size, but it is indeed beneficial, and GovDeals is performing extremely well on its own.

Okay. So I guess I assume that you're not at liberty to give us any idea what the GMV generation of this was?

No, we're not disclosing that, but it's being integrated with and into our GovDeals marketplace for government accounts and our CAG segment for commercial fleet sellers.

Okay. Okay. And then this whole issue with the retail sector where you're getting lower ticket items flowing through on GMV, is that something that given what the comparables would be throughout last year that you would expect to continue to see for fiscal '24? Or you said it's getting a little bit better, but is it still a situation where, because of, I don't know, headline news, sluggish economy, or whatever, you continue to think that you'll see a less amount of higher ticket items flowing through your GMV platform?

I believe we are dealing with a shift in consumer behavior, with consumers becoming more cautious about making significant high-ticket purchases online. We have adapted to this change and feel confident operating in the current market for the remainder of the year. We've successfully managed to move products through the right channels, improving our margins, and adjusted our service levels to ensure a good return on our operational investments. We've launched a new growth avenue with the AllSurplus Deals consumer marketplace, which maximizes the value of goods and utilizes our existing infrastructure, allowing us to operate without traditional ground-up expansion. This leverages our auction marketplace platform and operational capabilities to enhance recovery and share margins with our seller clients. We feel we are in a strong position, especially since we are receiving positive feedback at a major trade show this week regarding our multichannel strategy. All companies, including those in retail supply chains and e-commerce, are seeking efficiencies due to changes in consumer behavior. Many have downsized their warehouse capacity and infrastructure, and we have stepped in to offer capabilities that enhance their efficiency, enabling us to capture more market share. Over the long term, we are optimistic about our prospects in this market.

Okay. Lastly, I didn't see it and I apologize if I missed it since I've had a few companies report this morning. Did you engage in any share repurchases during the quarter? And at these levels, are you inclined to buy back your stock after the release of Q1 earnings?

Well, as far as allocation of capital, we do have a repurchase program and we are continuing to execute that, Gary. We'll be executing that throughout the year, including this quarter. So the answer is yes to that, and I'll defer to Jorge on any other details on what was done in the last quarter.

Yes, Gary, as pointed out in the remarks, $1.2 million in share repurchases this past December.

Our next question comes from the line of George Sutton with Craig-Hallum.

Bill, you mentioned the opportunity to double your TAM through Asia. Can you talk about what the selling strategy is into that market? Are you purely going direct? Are you going through partners? Can you give us a sense of how you attack that?

Thank you for the question. We're utilizing our existing infrastructure in Asia. We have been operating in China for over ten years, serving relationships with multinational companies that require asset management and sales support. We have a strong leader in the region, who is an ex-McKinsey consultant and has been with us for nearly 15 years. We have leveraged our physical presence by establishing a regional sales organization to expand the Machinio platform into those markets, and we are selling directly. Our sales approach is highly efficient, utilizing various digital inside sales methods, which enables us to execute quickly and secure profitable growth. There is significant interest in the ability to move used equipment outside the region, utilizing Machinio's presence across the U.S., North America, and Europe, where we have many potential buyers. We are observing good adoption of the solution, despite starting with a small base. Previously, we generated some revenue on the Machinio platform from subscribers before establishing a sales presence there. Now we are enhancing our value proposition and presenting it to more relevant relationships. These are not minor companies; for example, XCMG is a notable player. This activity contributes to the ecosystem; more supply leads to increased buying activity, and now people are aware that we are operational in Mainland China and Asia, which means more product availability. We anticipate that organic growth will accelerate over time.

So I wondered if Jorge could just walk through the CAG, any sort of quantification of the CAG deals that slipped in the quarter? What's closed thus far in the Q2 quarter and how much of that do you ultimately expect to get in Q2?

So George, what I mentioned earlier is that there were probably about six deals, most of which were finalized in January. We anticipate that most will occur in the upcoming quarter, with maybe one or one and a half possibly extending into the next quarter. However, we expect CAG to perform strongly in the March quarter, not only because we had already anticipated a solid quarter, but also because of the catch-up on these transactions, which were all from December. That said, CAG occasionally experiences delays, particularly with international and more complex transactions.

Can you provide me with the total GMV from the half-dozen transactions? You mentioned this as one of the reasons for some challenges in the first quarter, so I'm interested in knowing how much it amounts to.

I'm not going to quantify the transactions, George. What I want to highlight is the shortfall in those two particular segments compared to our expectations, which was primarily due to delays in those transactions and some product mix market issues in retail.

Remember, this is all happening in a public marketplace too. So one can see what's being listed and sold in real time in the marketplace. We've had some really good results in the current quarter, George, that illustrate the types of transactions that have rolled over. It's fair to say that absent some delays, we wouldn't have been at the low end of the range. It would have been near the high end of the range collectively. These are things that we continue to manage. Again, we're in the long game. I mean we're about building the highest recovery, the most liquid buyer base, making sure that we're covering every industry where there's growth opportunities. I know in your world, it's very important to have a precise model quarter-to-quarter. In our world, we're really looking to deliver the best value to clients on a continuous basis. That's our goal. That's how we invest. That's how we think about the growth strategy. The combination of some of the modernization we've done with GovDeals and the opportunity to integrate a lot of the tools that everyone in every industry is utilizing, sort of AI tools and machine-driven marketing, all help us win in the marketplace. We're excited about the business pipeline and feel like we've got the right services in a very differentiated marketplace experience to win and convert more opportunities in retail and the capital assets segment. We talked about Machinio, so I think we're well-positioned for what the needs are currently in the market, and that's why we're going to continue to grow.

Got you. Bill, this was almost the first conference call in America that did not include the term AI, but you did slip it in. So congratulations. That's it for me.

That was an unintended interruption of the streak.

Thank you for your questions. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.