Welcome to the Liquidity Services Inc. First Quarter Fiscal Year 2024 Financial Results Conference Call. My name is Norma, and I'll be your operator for today's call. Please note that this conference call is being recorded. [Operator Instructions] On the call today are Bill Angrick, Liquidity Services' Chairman and Chief Executive Officer; Jorge Celaya, Executive Vice President and Chief Financial Officer. They'll 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 materially. 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, in its press release and filings with the SEC, one of which is posted on its website, and you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of the measures with the comparable GAAP measures as available. Liquidity Services 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. 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'll turn the conference over to your -- 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. And 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…

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, impacting these results. 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. And 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…

[Operator Instructions] 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.

Right. I just wanted to make sure of that. And then can you give us some idea of the GMV generation of Sierra Auction? And does it have a very similar kind of direct profit margin contribution? Or will it -- that the GovDeals business has currently?

The business, very similar to GovDeals, it's 100% -- 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 just point out that the deals had a very good quarter -- this past quarter without the Sierra acquisition, and we expect to have another double-digit growth quarter next quarter without Sierra. Sierra is accretive. But as Bill said, it's given the indication of the size, but it is accretive, but GovDeals is still without it performing extremely well.

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 think we're -- and we've said this for the last few quarters, we've seen a reset in consumer behavior and a more frugal consumer with respect to significant high ticket purchasing online. I think we've normalized that, and we're comfortable executing in the current environment for the balance of the year, Gary. I think we've been effective in moving product through the right channels to improve margins and where needed to sort of adjust our service levels with clients to make sure that we're getting a good return on sort of our operational investments. And we've sort of opened up a new front of growth through this, AllSurplus Deals, consumer marketplace channel which extracts more value for the goods and which leverages our current infrastructure of the 7 distribution centers so that we're not -- this is not sort of a traditional ground-up expansion. This is really leveraging an existing auction marketplace platform and operational capability to essentially move recovery up and share that margin with our seller clients. So I think we're very well positioned. In fact, we're at one of the big trade shows this week, very strong receptivity to our multichannel positioning. And as we mentioned, I think all companies, including retail supply chain companies, e-commerce retailers, omnichannel retailers, the vendors who supply -- they're all looking for efficiencies because they're all dealing with -- toward that resetting consumer behavior. So many of them have reduced warehouse capacity, reduced infrastructure, and we stepped in and provide them a lot of capabilities to be more efficient and that allows us to grow market share. And I think in the long term, we're going to be a winner in that market.

Okay. And then just lastly, I didn't see -- and apologize for this if I missed it because I've had a couple of companies report this morning. But did you do any kind of share repurchases in the quarter? And at these levels, would you have an appetite for your stock post Q1, the release of earnings there?

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.

[Operator Instructions] 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 just give us a sense of how you attack that?

Thank you for the question. We're leveraging, Gary -- excuse me, Craig, the -- George, excuse me, the current infrastructure that we have in Asia. We have been in China for over a decade serving CAG relationships. These are multinational companies that need asset management and sales support. We have a very strong leader in Asia, ex-McKinsey consultant has been with us for over now almost 15 years. So what we did is we took advantage of our physical presence there, and added a regional sales organization to extend the Machinio platform into those markets, and we sell direct. Now we sell very efficiently through a variety of sort of digital inside sales practices, George, and that allows us to hit the ground running quickly and ensure profitable growth. The reality is that there is a big interest in being able to move equipment -- used equipment outside of the region, and that's tapping into Machinio's presence throughout the U.S., North America, Europe, a lot of buyers. And we're seeing good adoption of the solution, albeit it's a small base that we're starting with. But we had some revenue already on Machinio platform with subscribers before we opened up a sales presence there. And now we're just redoubling the value proposition and getting that in front of more interesting relationships. And these are small -- these are not small companies. And an example I gave, XCMG, is a pretty large player. And again, it feeds that ecosystem, more supply equals more buying activity and people now know that we're open for business in Mainland China and Asia, and there's more product availability. So we expect that organic growth to 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, I'll say is what I said in the remarks that most of the deals there was -- I can tell you there was probably a half dozen and most of them have been transacted in January. We expect most of them to be in this next quarter, maybe 1 or 1.5 partially will slip into the next quarter. But we expect CAG to have a very strong March quarter, right, the one coming up, not only because we had already planned that it was going to have a pretty solid quarter, but then you compound that with the catch-up on these. And really, they were all December transactions. But that CAG from time to time has these slippages, especially when they're international more complex transactions.

Well, again, a half dozen transactions equating to about how much in GMV? Or is there a -- you called it out as one of the reasons for some of the challenges in the first quarter. I'm just curious how much of that...

I'm not going to do transaction quantification, George. But what I'm calling out is on the shortfall, I guess, to be, if you want to call it that, on those two particular segments from what we expected, at least, it was those -- delays in those transactions and then as I said, some of the 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, real time in the marketplace. And we've had some really good results in the current quarter, George, that are illustrating the types of transactions that have rolled over. But I think 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. So those are things that we continue to manage. And 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. And 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. And that's our goal. That's how we invest. That's how we think about the growth strategy. And I think the combination of some of the modernization that we've done with GovDeals with the opportunity to integrate, a lot of the tools that everyone in every industry is utilizing, sort of AI tools and machine-driven -- one-to-one marketing, that's all helping us win in the marketplace, and 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 and we talked about Machinio. So I think we're well positioned to 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.