Liquidity Services Announces Third Quarter Fiscal Year 2023 Financial Results

BETHESDA, Md., Aug. 03, 2023 (GLOBE NEWSWIRE) -- Liquidity Services (LQDT; www.liquidityservices.com), a leading global commerce company powering the circular economy, today announced the following financial results as of the quarter ended June 30, 2023, as compared to the applicable prior year periods:

• Gross Merchandise Volume (GMV) of $334.0 million, up 3%, and Revenue of $80.8 million, up 16%
• GAAP Net Income of $6.5 million¹ and GAAP Diluted Earnings Per Share (EPS) of $0.21¹
• Non-GAAP Adjusted EBITDA of $13.3 million, up $1.5 million, and Non-GAAP Adjusted Diluted EPS of $0.28, up $0.07
• Cash balances of $105.9 million² with zero financial debt; $4.2 million of share repurchases during the quarter

"We achieved record GMV during the quarter driven by strong execution for our clients and market share gains from our investments in sales and marketing. Our outstanding buyer participation and flexible service offerings continue to attract more sellers and drive better seller recovery, which, in turn, powers our growth. Our Retail Supply Chain Group (RSCG) experienced strong organic growth with new and existing sellers utilizing our marketplace channels, including Liquidation.com and AllSurplus Deals. Our core GovDeals marketplace experienced record customer and transaction activity during the quarter; however, our GovDeals overall segment results were slowed by lower real estate sales in our acquired Bid4Assets marketplace due in part to low U.S. foreclosure levels. Our overall business fundamentals remain strong and we are focused on driving continued growth by providing exceptional service to our clients and delivering enhanced liquidity and asset breadth through our marketplace platform," said Bill Angrick, Liquidity Services CEO.

Third Quarter Financial Highlights

GMV for the fiscal third quarter of 2023 was $334.0 million, a 3% increase from $325.0 million in the third fiscal quarter of 2022.

• GMV in our RSCG segment increased 20%, driven by new and expanding client programs and improving recovery rates due in part to our buyer marketing efforts.
• GMV in our CAG segment increased 14%, led by its global industrial and heavy equipment categories.
• GMV in our GovDeals segment decreased 4%, driven by lower volumes of foreclosed real estate properties available for auction, partially offset by record marketplace activity for personal property, including the numbers of sellers and assets sold, and the improved availability of vehicles.

Revenue for the fiscal third quarter of 2023 was $80.8 million, a 16% increase from $69.9 million in the third fiscal quarter of 2022.

• Revenue in our RSCG segment increased 20%, as increased volumes of recurring product flows were higher in several purchase model programs. This increased purchase model mix and was the primary driver of the lower segment direct profit margin percentage, which was partially offset by improving recovery rates.
• Revenue in our CAG segment increased 15%, consistent with its increase in GMV.
• Revenue in our Machinio segment increased 14% with continued increases in subscriptions.
• Revenue in our GovDeals segment increased 4%, as volumes increased in key categories and pricing improvements benefited the results, despite lower GMV from lower take-rate foreclosed real estate sales.

GAAP Net Income was $6.5 million, or $0.21 per share, for the fiscal third quarter of 2023, a decrease from $16.4 million¹, or $0.50 per share¹, for the same quarter last year.

Non-GAAP Adjusted Net Income for the fiscal third quarter of 2023 was $8.8 million, or $0.28 per share, an increase from $7.1 million, or $0.21 per share last year.

Non-GAAP Adjusted EBITDA for the fiscal third quarter of 2023 was $13.3 million, a $1.5 million increase from $11.9 million in the fiscal third quarter of 2022, reflecting increased GMV and revenue results, partially offset by year-over-year increases in sales, marketing, technology and operations expenses to support market share expansion, diversification and longer-term growth.

¹ The prior year results included an $11.5 million, or $0.35 per share, non-cash benefit from a reduction in the fair value of the Bid4Assets earn-out liability. For further information, see Note 11, Fair Value Measurement, to our quarterly report on Form 10-Q for the period ended June 30, 2023.

² Includes $98.1 million of Cash and cash equivalents and $7.7 million of Short-term investments.

Third Quarter Segment Financial Results

We present operating results in four reportable segments: GovDeals, RSCG, CAG and Machinio. For further information on our reportable segments, including Corporate and elimination adjustments, see Note 14, Segment Information, to our quarterly report on Form 10-Q for the period ended June 30, 2023. Segment direct profit, previously referred to as segment gross profit, continues to be calculated as total revenue less cost of goods sold (excluding depreciation and amortization).

Our Q3-FY23 segment results are as follows (unaudited, in thousands):

Third Quarter Operational Metrics

• Registered Buyers — At the end of Q3-FY23, registered buyers, defined as the aggregate number of persons or entities who have registered on one of our marketplaces, totaled approximately 5.1 million, representing a 5% increase over the approximately 4.8 million registered buyers at the end of Q3-FY22.
• Auction Participants — Auction participants, defined as registered buyers who have bid in an auction during the period (a registered buyer who bids in more than one auction is counted as an auction participant in each auction in which he or she bids), was approximately 924,000 in Q3-FY23, a 5% increase from the approximately 884,000 auction participants in Q3-FY22.
• Completed Transactions — Completed transactions, defined as the number of auctions in a given period, were approximately 252,000 in Q3-FY23, consistent with the approximately 253,000 completed transactions in Q3-FY22.

Business Outlook

Our expertise in diverse sectors, our strong buyer base across numerous asset categories, and our global reach are continuing to provide advantages as our clients navigate economic change and look to us for valuable solutions.

Our fiscal fourth quarter 2023 guidance range is expected to be above last year for GMV and adjusted EPS, and consistent with last year for adjusted EBITDA. Our fiscal fourth quarter follows our seasonally high fiscal third quarter, and our GMV outlook reflects this seasonality and expected growth over the prior year period. Core activity remains strong, while the availability and market pricing of used vehicles may fluctuate and the availability of foreclosed real estate is expected to remain a headwind. GovDeals is coming off its seasonal peak this past fiscal third quarter yet is expected to benefit from our continued efforts to expand our seller base and marketplace margins. The GovDeals Bid4Assets real estate activity has declined year-over-year given recent foreclosure trends and delays in converting prospects and selected contract awards to operational programs. The RSCG segment expects to continue to benefit from its business development efforts to grow its portfolio of programs for the sale of recurring product flows from new and existing clients. RSCG top line growth may decline slightly from the third quarter growth rate due to elevated spot liquidations supply from clients in the prior year period. RSCG segment direct profit as a percent of revenue is anticipated to improve sequentially this coming fiscal fourth quarter compared to our last two quarters. In the fiscal fourth quarter last year, CAG completed large purchase transactions with international clients that may hamper year-over-year comparisons, provided, however, that CAG currently has a strong pipeline of new projects across a number of verticals.

We currently anticipate our consolidated revenue as a percentage of GMV to remain in the mid twenty percent range, reflecting our anticipated mix of business and marketplace asset categories. We expect our direct profits as a percentage of total revenues to be in a range similar to the same quarter last year. We anticipate continued investment in our sales and technology initiatives in support of our marketplace enhancements and long-term growth.

For Q4-FY23 our guidance is as follows:

GMV - We expect GMV to range from $290 million to $315 million.

GAAP Net Income - We expect GAAP Net Income to range from $4.0 million to $6.5 million.

GAAP Diluted EPS - We expect GAAP Diluted EPS to range from $0.13 to $0.20.

Non-GAAP Adjusted EBITDA -We expect Non-GAAP Adjusted EBITDA to range from $10.0 million to $13.0 million.

Non-GAAP Adjusted Diluted EPS - We expect Non-GAAP Adjusted EPS to range from $0.19 to $0.27.

Our Business Outlook includes forward-looking statements which reflect these trends and assumptions for Q4-FY23 as compared to the prior year's period:

• continued R&D spending to support omni-channel behavioral marketing, analytics, and buyer/seller payment optimization;
• spending in business development activities to capture market opportunities, targeting efficient payback periods;
• a longer-term trend of continued mix shift to the consignment model, which may lower revenue as a percent of GMV but can improve segment direct profit as a percentage of revenue;
• variability in the inventory product mix handled by our RSCG segment, which can cause a change in revenues and/or segment direct profit as a percentage of revenue, including variability from changes in consumer sentiment, retailers increasing product flows to us on an episodic basis to solve capacity constraints at retailer warehouse or distribution centers and retailers decreasing product flows as they solve capacity constraints and return more product to store shelves or fulfillment centers;
• as growth in the foreclosed real estate category within the GovDeals segment occurs, take rates as a percentage of GMV are expected to become lower without significantly affecting segment direct profit as a percentage of revenue. GMV from real estate transactions can be subject to significant variability due to changes that include postponements or cancellations of scheduled or expected auction events, the value of properties to be included in the auction event, and the value of the properties that may be withdrawn due to the property holder curing their delinquency or taking other legal actions to delay the sale of their property;
• continued variability in project size and timing within our CAG segment;
• continued growth and expansion resulting from the continuing acceleration of broader market adoption of the digital economy, particularly in our GovDeals and RSCG seller accounts and programs, including the execution by RSCG on its business plans for AllSurplus Deals and its expanded distribution network;
• continued growth in our Machinio advertising subscription service and acceptance of other Machinio service offerings;
• successful integration of Bid4Assets and execution by Bid4Assets on planned real estate auction activity and its business plan, including efforts underway with local and state governments to advance legislation that allows for online auctions for foreclosed and tax foreclosed real estate;
• our annual FY23 effective tax rate (ETR) is expected to range from approximately 25% to 31%. This range excludes any potential impacts from legislative changes to U.S. corporate tax rates that may be enacted during Q4-FY23; and potential impacts from items that have limited visibility and can be highly variable, including effects of stock compensation due to participant exercise activity and changes in our stock price. We are not expecting a substantial increase to cash paid for income taxes due to our continued net operating loss carryforward position; and
• our diluted weighted average number of shares outstanding is expected to be approximately 32.0 million. As of June 30, 2023, we have $1.8 million in remaining authorization to repurchase shares of our common stock.

Reconciliation of GAAP to Non-GAAP Measures

Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA. Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to net income plus interest and other (income) expense, net; provision for income taxes; and depreciation and amortization. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA for stock compensation expense, acquisition costs such as transaction expenses and changes in earn-out estimates, business realignment expenses, and goodwill, long-lived and other non-current asset impairment. A reconciliation of Net Income to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA is as follows:

¹ Interest and other (income) expense, net, per the Consolidated Statements of Operations, excluding the non-service components of net periodic pension (benefit).
² Acquisition costs and impairment of long-lived and other non-current assets are included in Other operating (income) expenses, net on the Consolidated Statements of Operations.

Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Basic and Diluted Earnings Per Share. Non-GAAP Adjusted Net Income is a supplemental non-GAAP financial measure and is equal to Net Income plus stock compensation expense, acquisition related costs such as transaction expenses and changes in earn-out estimates, amortization of intangible assets, business realignment expenses, goodwill, long-lived and other non-current asset impairments, and the estimated impact of income taxes on these non-GAAP adjustments as well as non-recurring tax adjustments. Non-GAAP Adjusted Basic and Diluted Income Per Share are determined using Adjusted Net Income. For Q3-FY23 the tax rate used to estimate the impact of income taxes on the non-GAAP adjustments was 27% compared to 26% used for the Q3-FY22 results. These tax rates exclude the impacts of the charge to our U.S. valuation allowance and the fair value adjustments to earn-out liabilities. A reconciliation of Net Income to Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Basic and Diluted Income Per Share is as follows:

* Acquisition related costs and impairment of long-lived and other non-current assets, which are excluded from Non-GAAP Adjusted Net Income, are included in Other operating (income) expenses, net on the Consolidated Statements of Operations.

Conference Call Details

The Company will host a conference call to discuss these results at 10:30 a.m. Eastern Time today. Investors and other interested parties may access the teleconference by registering here to receive the dial-in number and unique conference pin. A live listen-only webcast of the conference call will be provided on the Company's investor relations website at https://investors.liquidityservices.com. An archive of the web cast will be available on the Company's website until August 3, 2024 at 11:59 p.m. Eastern Time. The replay will be available starting at 1:30 p.m. Eastern Time on the day of the call.

Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP measures of certain components of financial performance. These non-GAAP measures include earnings before interest, taxes, depreciation and amortization (EBITDA), Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and prospects for the future. We use EBITDA and Adjusted EBITDA: (a) as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they do not reflect the impact of items not directly resulting from our core operations; (b) for planning purposes, including the preparation of our internal annual operating budget; (c) to allocate resources to enhance the financial performance of our business; (d) to evaluate the effectiveness of our operational strategies; and (e) to evaluate our capacity to fund capital expenditures and expand our business. Adjusted Earnings (Loss) per Share is the result of our Adjusted Net Income (Loss) and diluted shares outstanding.

We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

We believe these non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of our core operating measures. In addition, because we have historically reported certain non-GAAP measures to investors, we believe the inclusion of non-GAAP measures provides consistency in our financial reporting. These measures should be considered in addition to financial information prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. A reconciliation of all historical non-GAAP measures included in this press release, to the most directly comparable GAAP measures, may be found in the financial tables included in this press release.

We do not quantitatively reconcile our guidance ranges for our non-GAAP measures to their most comparable GAAP measures i