Welcome to the Liquidity Services Incorporated First Quarter and Fiscal Year 2022 Financial Results Conference Call. My name is Venessa, 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 Angrick, Liquidity Services’ Chairman and Chief Executive Officer; and Jorge Celaya, its 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 3, 2022, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact a financial result is included in today’s press release and 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 this call, Liquidity Services 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. You will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Liquidity Services management also uses certain supplemental operating data as a measure of certain components of operating performance, which they also believe is useful for management and investors. This 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 now turn the presentation over to Liquidity Services CEO, Mr. Bill Angrick.

Good morning, and welcome to our Q1 earnings call. I’ll review our Q1 performance and provide an update on key strategic initiatives. Next, Jorge Celaya will provide more details on the quarter. Long-term investments in our people, products and outstanding customer service have been rewarded with surging volume as we set an all-time quarterly GMV record during Q1. And in Q1 we surpassed our previously stated goal of reaching $1 billion in annualized GMV. As the world’s largest marketplace for surplus goods, Liquidity Services powers the $100 billion-plus circular economy. By ensuring that every piece of used equipment and returned consumer merchandise quickly finds a second life and stays out of the landfill system. We deploy a sophisticated set of technology, software and data-driven services to deliver on this mission in the most efficient manner with the highest financial recovery and lowest carbon footprint for our customers. Our mission and value proposition are resonating with sellers as we grew our GMV by 37% year-over-year in Q1 to approximately $260 million, an all-time record and our sixth consecutive quarter of 20%-plus annual GMV growth. Our growth was broad-based across every sector of the economy, including energy, transportation, construction, retail consumer goods, industrial manufacturing, and our newest vertical real estate. Our proven track record of delivering superior financial returns and lower supply chain costs for our customers is driving more higher-value goods to be listed and sold on our marketplace platform on a sustained basis. And one example this past month, we sold two Bell helicopters on our marketplace for the City of Jacksonville, Florida. These items generated over $1 million of proceeds to the client attracting over 30,000 unique buyers and thousands of bids for these assets. Our mission and value proposition is also resonating with buyers. During Q1, the number…

Good morning. Our first quarter results reflect continued momentum in our GovDeals segments and another strong quarter from our CAG segments. These results also reflect additional resources in our sales, marketing and technology groups and the investments in our new AllSurplus Deals growth initiative and the operating capacity expansion in the Northeast for our RSCG segment. We are targeting our efforts and investments to support and generate profitable growth across our segments as we anticipate accelerated GMV growth in the second half of fiscal year 2022 to early 2023. We completed the first quarter of fiscal year 2022 with $260.2 million in GMV, an all-time quarterly record that exceeds the $1 billion annualized goal we set forth previously. GMV was up 37% from $190.4 million in the same quarter last year. Revenue for this first fiscal quarter was $66.7 million, a 20% increase compared to the same quarter last year. As consignment GMV sales grow faster than purchase GMV sales, and more so, the self-service component of consignment GMV. Revenue as a percent of GMV would be expected to lower as we have indicated previously. This change in mix has been part of our long-term strategy. We anticipate growth in real estate sales to reduce the ratio of revenue to GMV, given lower average take rates, with this being a high-value category. However, despite this lower ratio of revenue to GMV, gross margins for real estate are expected to be similarly as strong as our self-service low touch businesses, including GovDeals and maps the corresponding low operating expense, high leveraged business model in line with our GovDeals segment. Net income for this first quarter was $3.6 million, resulting in diluted earnings per share of $0.10. Non-GAAP adjusted EBITDA was $9.4 million, an improvements over the same quarter last year. We…

Thank you. We will now begin our question-and-answer session. [Operator Instructions] We have our first question from Gary Prestopino with Barrington Research. Please go ahead. Your line is open.

Good morning, all. Couple of questions here. First of all, Bill, are you going to – could you just give us some idea of what the organic growth in GMV was? Are you going to make that metric public or not?

The integration of the businesses will make that more difficult to provide over time, but independent of Bid4Assets, we were in line with that six consecutive quarters of 20%-plus GMV growth, Gary.

Okay.

So the core business is performing well.

And you only had two months of Bid4Assets, right?

Correct.

It’s closed on the [indiscernible] Okay. Good. All right. And then in terms of the revenue to GMV, and the net revenue to GMV, I got it measured total revenue to GMV 25.6%, net revenue to GMV about 15% this quarter. With a full quarter growth in Bid4Assets, Jorge, do you expect those numbers to – percentages to scale down from where they were in Q1?

Yes. And pretty much in line with what I said last quarter, which was that over the course of the year, that ratio of revenue to GMV where it used to be in the high 20s now is going to be more in the low 20s.

Okay.

And it’s going to go in that direction as the year progresses.

All right, that’s good. And then one of the things that you mentioned in the release was that there were some stellar constraints in the RSCG segments in the quarter. Could you just elaborate that – on that?

Was that in – Jorge, in your business outlook section?

No, no, you said that RSCG, I’m sorry. You had 3% growth, diversified seller product flows, and – but it was magnified by selective seller capacity constraints. I’m trying to get an idea of what was going on there?

Well, the – I think certainly, you’ve seen the retail industry struggle with getting product to store, product to ship, the backlog in the ports. It’s well publicized. And the markets reflected that challenge and availability of product. So I think that’s something that is resolving itself and some of the indications in this last two to four weeks has indicated that the ports are starting to free up, and I think that would normalize that issue.

Okay. So that leads me into my next question in terms of the outlook, as you look in the back half of this year, you’re saying that you’re going to see an acceleration in growth overall versus the first half of the year? And maybe if you could go market-by-market and give us some of the the rationales for what you’re talking about in terms of growth going forward, that would help us just understand the dynamics of what’s going on with the business?

Sure. Well, I think, first of all, across the entire business, we’ve front loaded significant headcount improvement and business development, seller facing marketing, and product development, which is essentially enhancing functionality to meet seller needs, which would trigger more activity on our marketplace. So, that investment certainly is a cost that we’re carrying in the first half of the year without the return on that investment, showing up immediately that that return will begin to reveal itself as we move through the June and September quarters. In the GovDeals marketplace, we have 15,000 government agency clients that are now being presented with the opportunity to fold their real estate sales into the relationship. We have probably the longest standing subject matter expert for managing online real estate sales with government entities and Bid4Assets that’s helping drive that capture of the opportunity. So we certainly expect that based on contractual relationships, we will realize significant improvement in the real estate category as we move through the year. And when we bought Bid4Assets, Gary, we outlined that we believe that this is a $1 billion GMV business opportunity. Now it’s going to take a few years to get it. But I think we’ll make a material game in towards that goal in the first year of owning Bid4Assets. So I think that stair step is going to start to reveal itself as we move to the second half of the year. The core GovDeals business is moving up the value chain to capture higher value construction equipment, transportation equipment, vehicle fleets, power generation assets. And with an infrastructure bill flowing into the local municipal government budgets, we think there’s opportunity for many of our clients to rotate to the newer assets and that will free free up more used equipment to be moving through the GovDeals business.

Okay.

We’re very sanguine on that. On the retail business, we are picking up market share, and we’re expanding our footprint to respond to needs expressed by many of our retail clients who are moving closer to high densely population centers with their last-mile delivery centers. That’s creating more volume for our e-commerce and omni-channel partners, but also more returns. So our Pittston, PA facility is a great example of us creating a value-added solution for clients who expect more returns to be coming from the densely populated Northeast region. We’re also picking up more business in our existing markets as people have emerged from COVID still with the habit to buy higher-value goods online, the expensive home theater electronics items, furniture and houseware items, exercise equipment, lawn and garden equipment, building tools, do-it-yourself home improvement items, all that’s flowing through e-commerce and eventually coming back through our channel into the retail supply chain through marketplace. So that is an important part of what we’re doing to boost capacity and volume in the retail business. Also, we’ve created a new AllSurplus Deals direct-to-consumer channel, which is essentially the same underlying technology platform that AllSurplus provides, but providing a stream of goods to end users who have an insatiable appetite for less than new deals price goods, and we’re leveraging a distribution center that we have there. And we’re seeing good uptake of that solution. And we’ll keep people updated on it. It’s still early, but we feel that’s another way to boost our market share in the retail business. The manufacturing side, I’d also want to underscore for retail business, lots of products that manufacturers take back from retailers are flowing through our marketplace. But because we’ve provided the full suite of refurbishing capabilities to certify condition of these items and…

Okay. I’ll let somebody else go.

Your line is still open, sir. If you have any further questions, you can proceed.

Okay, thanks. Yeah, just another thing, Bill, the strong global pipeline of project-based GMV going into Q3 2022, when you’re talking about something like that, is that – you’re getting commitments from these companies that to sell product online that far in advance, because…?

Yeah, in some cases, there’s some dismantling or other preconditions to the assets being put to fail. And we were brought in early in that process to help the client navigate all pre-sale conditions, but we have visibility to some very meaningful asset sales.

Can you give us some idea of what that growth in that pipeline looks like?

Well, I think compared to where we were a year ago, we’re up about 50%.

Okay, that’s great news.

And these projects sometimes span multiple quarters. But what we like is that, we’re offering these Fortune 500, Fortune 1000 companies a full range of both self-directed solutions, as well as fully managed services. And the uptake in our self-directed platform has been very robust. We have a lot of energy companies, which is another strong performer for us in the quarter, a lot of energy companies that historically would have asked us to come out and handle assets, and do all of the pre and post-sale work. Now through our cloud-based system, these clients are able to upload their assets directly from multiple locations throughout the world. It’s great for the client, it’s great for us, a very high margin business and one that the client really has embraced.

So they’re taking advantage of the self-serve?

Absolutely.

Okay. And then just lastly, with the investments that you’re making, which are all good for growth, that’s capable of taking you to a $1.5 billion run rate of GMV. As you stair step growth from there, will you be needing to make, I would assume, you’d be needing to make further investments? Or I mean, I guess what I’m getting at is, is what kind of capacity does your current platform infrastructure support once you’re done with the investment this year?

We believe – I think we will have set ourselves up to support growth far beyond the $1.5 billion. There is a core group that is bringing on new verticals like real estate, heavy equipment, we’re doing some natural product enhancement on that self-directed business, because that’s growing rapidly. So we would think we could go beyond the $1.5 billion, call it, another $1 billion and ahead of that $2 billion to $3 billion of GMV with the core infrastructure that we build coming out of fiscal 2022.

Okay, great. I appreciate you taking my question and keep up the good work. Thank you.

Thank you.

And thank you, sir. And we have no further questions at this time. Ladies and gentlemen, this concludes our call. We thank you for participating. You may now disconnect.